The metals industry is on its way to the worst quarter since the financial crisis of 2008, when prices plunged amid fears of recession. For example, the price of copper, which is considered one of the most important indicators of the state of the economy, has recently deteriorated into a bear market with a 21% drop from the peak, the worst since the 1980s.
This is a dramatic change from the trend in the last two years, in which metal prices have soared during the period of the economy’s return to post-closing norms on the demand side, and high inflation forecasts and supply difficulties on the supply side. Now inflation is still here, the supply chain is still not functioning properly, but prices are falling in parallel with rising fears of a slowdown in manufacturing activity in the industry along with declining demand in China.
Metal like copper is used in almost everything, from heavy machinery to industry to advanced electronics. A drop in price indicates that the market is experiencing significant economic changes, and that the effort to achieve a moderation in price increases is likely to achieve initial successes.
The downward trend in metal prices continues even after the tightening of tight corona closures in China in recent weeks, and there are traders in futures contracts who are betting on the continued fall in copper prices. “Even if China recovers in the second half, it will not be able to bring prices back to new heights – that period is over,” said Amalia Xiao Fu, BOCI’s commodity strategist.
Factory activity in China is already shrinking, and manufacturing activity in Europe also slowed for the first time in two years, while manufacturing activity in the United States is at a 23-month low. Despite this global contraction, the decline in the price of copper and other industrial metals is an indication that investors are betting on a sharper decline in demand in the coming weeks.
Copper is trading at a 16-month low of $ 8122 per tonne on the London Stock Exchange. So far, the price of goods in June has fallen by 11%, one of the sharpest monthly declines in the last 30 years. Even metals like aluminum or zinc have dropped sharply. The Bloomberg Industrial Metals Index fell 26 percent in the current quarter, the sharpest decline since 2008, cutting half of its March high.
The prices of metals have fallen more than the prices of other commodities such as grain or energy, whose prices have also moderated slightly in other weeks compared to the peak of March, as they are still suffering from the difficulties created by the war in Ukraine. Bloomberg’s energy price index fell by 10% and that of agricultural products by 9.7%.
The declines in prices accelerated after the Fed’s latest interest rate announcement raised the interest rate by 0.75%. Although other markets have begun to reflect the appreciation or hope that interest rate hikes are nearing completion, this is not apparent in the metals market which has, as mentioned, amplified the declines. The Federal Reserve has already warned that it has no control over the supply side that has caused price increases of commodities like coal or oil, but the Fed’s rate hikes certainly affect the demand side, which could hurt demand for metals by industries like car manufacturing and sustainable products. While debt costs are rising, even industries like construction and industrial machinery that are among the major consumers of metals may slow the pace and lower demand.
The positive side is that we may soon begin to see a more significant moderation in inflation due to declining demand and also the decline in manufacturing costs due to declining metal prices.
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