The copper price slumped to a 20-month low on Monday amid fresh COVID-19 restrictions in China and the threat of another US interest rate hike.
Copper for delivery in September was trading at $US3.42 ($5.07) per pound at the time of writing (9:30am AEST, July 12) on the Comex market, which is a touch higher than the $US3.41 ($5.06) per pound 20-month low reported on Monday.
“The declines can be attributed to fears of new restrictions in Shanghai and Macau that could dampen growth,” SPI Asset Management managing partner Stephen Innes told The Economic Times. “We are caught in the negative feedback loop of Fed rate hikes and COVID risks in China.
“Market risks have shifted decisively from inflation to growth as ‘hard’ economic data has slowed considerably. Some investors are also taking profit ahead of key data later this week.”
Ole Hansen, head of commodity strategy at Saxo Bank in Copenhagen, said the strength of the US dollar hasn’t helped the situation.
“The dollar strength was the trigger that came on top of the recent recession fears, pulling the rug from under the market,” he said.
“This is the time of year where the market can easily get caught on the wrong side when liquidity is drying up.”
China is amidst a BA.5 storm, with the new Omicron sub-variant threatening further lockdowns across the country, including Shanghai. The country had only just emerged from a two-month lockdown.
While China’s case numbers remain low compared to many other countries – China’s National Health Commission reported 352 locally transmitted cases on Monday – there is growing concern that the highly transmissible BA.5 sub-variant could cause a mass outbreak.
This is especially so considering China is still abiding by a COVID-zero policy. And if the factories aren’t open due to a lockdown, copper demand drops and the price tumbles.