Commodity spotlight: Copper falls, iron ore under pressure, macro weighs on lithium

Iron ore under pressure

China’s iron ore futures on the Dalian Commodity Exchange is on a 6-day losing streak amid sluggish demand and rising steel inventories.

Inventories at five major steel products at 184 Chinese steel mills reversed up over the week ending June 15 to 6.4m tonnes, up 0.8% compared to a week ago, according to Mysteel. The on-week rebound in inventories was blamed on sluggish demand from end-users. 

Fitch Ratings said this week that it expects iron ore prices to average US$120 a tonne for 2022.

The doctor needs a doctor

Copper prices has long been a leading indicator for the global economy because of its sensitivity to global industrial activity.

World copper consumption is used for equipment (31%), building construction (30%), infrastructure (15%), transport (12% and industrial (12%), according to Office of the Chief Economist.

Dr Copper is getting closer to prescribing a recession, down -4.5% this week to US$4.1/lb.

Copper is trading close to April 2021 levels and threatening to break below its longstanding 15-month trading range, between US$4 and US$4.7.

Copper futures (Source: TradingView)

Lithium

Lithium carbonate prices in China have been steady at 477,500 yuan (US$71,000) a tonne, bouncing off recent lows of 475,700 yuan (US$68,000).

Source: TradingEconomics

The same can't be said about lithium stocks, most of which have given back year-to-date gains and trading around 8-10 month lows. It's a tricky time for lithium, an otherwise bullish sector held back by broader-market weakness and a wobbly macroeconomic backdrop.

"For me, the biggest near-term threat to lithium prices is the macro outlook and the end of cheap credit. Around 90% of new cars are bought on finance in the UK, similar in US. If the Fed keeps hiking into a looming recession, we could see a hit to all new car sales, EV or not," said Peter Hannah, Manager at Fastmarkets.

Interestingly, Tesla has passed another round of price hikes, according to Bloomberg. Including:

• Model 3 long range price rose US$2,500 to US$57,990 

• Model Y long range rose to US$65,990 from US$62,990

• Model S dual motor all-wheel long range rose to US$104,990 from US$99,990 

• Model X dual motor all-wheel drive long range rose US$6,000 to US $120,990