Three-month copper slumped to $US8725.50 ($12,656) per tonne on the London Metal Exchange on Wednesday on fears of a global economic slowdown and continued COVID-induced uncertainty in China.
Standard Chartered said copper prices were linked to several ever-changing variables.
“Base metals remain pressured by a challenging demand outlook related to China’s COVID-19 lockdowns and to monetary policy tightening raising recession fears over the trade-off between inflation and growth,” the financial services company wrote in a note.
“We expect the base metals complex to continue to take its cues from macro developments, US dollar moves, external market moves and risk appetite trends.”
China’s strict zero-COVID policy has seen the country bound to regular lockdowns, hampering its economy and manufacturing sector in the process. Often perceived as China’s achilles heel, Wood Mackenzie is projecting the country can only produce 16 per cent of the copper needed for it to reach carbon neutrality by 2060.
But if the factories aren’t open due to a lockdown, demand drops and the price flops with it.
According to Mysteel, the price for 62 per cent Australian iron ore fines dropped $US6.75 per dry metric tonne (dmt) on day to $US109.35 ($158.6)/dmt on Wednesday – its lowest point since December 2021.
Commonwealth Bank of Australia analyst Vivek Dhar told Reuters this price slump was directly linked to the situation in China.
“Markets are particularly worried that demand growth expectations linked to China’s pledge to boost infrastructure investment may not materialise, especially with China’s zero-COVID policy still in play,” he said.
China has also increased its run-of-mine iron ore output of late, with Mysteel suggesting it grew 14 per cent on month in May to reach 97.8 million tonnes. This followed a decline in April.
China has been eager to boost its domestic iron ore output and reduce its reliance on external sources. The Financial Times has reported the country is also moving to establish its own centralised iron ore buyer, which it hopes can secure lower prices through larger bulk purchases.
At the end of the day, there’s a key contributor to copper and iron ore’s pitfalls – and that’s China.