The copper has lost some of its luster. On the London Metal Exchange (LME), its price even fell below 7,000 dollars (6,937 euros) per ton during the session on Friday July 15. A level that it had not reached since November 2020. To be compared to its all-time high, hit on March 7, when the ton of red metal was trading, in full euphoria, at 10,730 dollars. That is a drop of almost 30% since this record.
A real cold snap that does not only affect copper. All other industrial metals, more or less, are affected. From aluminum to zinc, via nickel, the general trend is downward. Since the start of the year, zinc has fallen by 18%, aluminum by 16% and nickel by 7%.
But the fate of copper, acclaimed by many industries, is particularly scrutinized by observers, due to its status as an economic thermometer. When Russian troops invaded Ukraine at the end of February, investors, losing their bearings, shuddered as they mentioned possible supply tensions. A surge of fever which intervened in markets already heated by the economic recovery, after the two years of crisis linked to Covid-19. As a result, prices soared.
Inflation, Chinese slowdown, rising dollar
Since the month of April, the tide seems to have turned. While China is still applying its zero Covid strategy, the health subject has returned to center stage. Even having become more sporadic, the containment measures taken by the Beijing government are worrying. These restrictions, which have affected large cities such as Shenzhen or Beijing, but especially Shanghai, can only slow down the Chinese economic engine and, therefore, by extension, global activity. Data released by the National Bureau of Statistics on Friday proves it. In the second quarter, year-on-year growth in China was limited to 0.4%. A sudden slowdown, after a dynamic first quarter, at +4.8%.
From the fear of running out of metal, the general sentiment has shifted to concern that demand will erode. It is true that the Middle Kingdom, the leading consumer of red metal, uses nearly 60% of world volumes. Copper supply thus exceeded demand by around 95,000 tonnes for the first four months of 2022, according to the latest report from the International Copper Study Group.
At the same time, investors are wondering about future health reports from Europe and the United States. Inflation fever has set in. Anxious to limit overheating, central banks have tightened monetary policy. The US dollar appreciated even to the point of sliding towards parity with the euro. A strengthening of the greenback which also fuels the downward trend in commodities. Finally, the Old Continent is facing a spike in energy prices and a risk of shortages in the winter of 2022-2023, if Russian gas flows are interrupted.
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