Copper prices today (HGU22) extended their month-long slide to a 20-month low on mounting worries that a global recession will hurt commodity demand. Goldman Sachs this week forecast that copper prices to trade at $6,700 a ton in the next three months, a 22% downgrade from its previous outlook.
Copper is used in everything from home wiring to electric vehicles and is seen as a barometer of the global economy's health. However, there are many risks to copper prices. The rally in the dollar index (DXY00) this week to a 20-year high is undercutting most commodity prices. Also, the pandemic remains a headwind, especially in China, as close to 30 million people are under some form of movement restrictions due to lockdowns. In addition, global central banks are tightening policies to curb soaring inflation.
Rio Tinto Group, a major copper supplier and the world’s second-biggest miner, issued a grim warning this week about the prospects for the global economy. It said headwinds in China were “considerable,” and pressure on global supply chains would need to ease significantly before inflationary pressure soften. Data today showed China Q2 GDP grew +0.4% y/y, weaker than expectations of +1.2% y/y and the slowest pace of growth since 2020.
Copper is down 35% from a record high made in March when metals were soaring on concerns about global supplies in the wake of Russia’s invasion of Ukraine. The markets are now concerned the global economy will slip into recession from a surge in energy prices, while some of China’s largest cities continue to be locked down due to the country’s Covid-zero policy. Bank of America said today that “the macro environment has definitely taken a turn for the worse.”
Sinking copper prices are also putting pressure on mining companies as shares of Freeport-McMoRan have tumbled 40% this year, while Rio Tinto, BHP Group, and Glencore have all dropped in recent weeks. Goldman Sachs warned that rising costs make about 300,000 metric tons of global copper-mine capacity unprofitable. The capacity that was profitable for copper at $6,270 a ton a year ago now won’t make money at $7,500 a ton.
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