Copper ignores critically low supplies and dips to 15-month lows on recession fears

Dr Copper might need to take a PCR test after falling to fresh 16-month lows of US$3.86/lb.

Copper has an acute sensitivity to global industrial activity and often viewed as a leading indicator for the global economy. When copper prices start rolling over, it's often a sign of sluggish economic growth, or worse, the ‘R’ word. 

Copper has been range-bound between February 2021 to late-June 2022, trading between US$4.0 to US$4.7/lb, with a few short-lived moments above US$4.8/lb.

In June alone, copper prices have slumped almost -15%, dipping below the symbolic US$4.0 level.

Copper futures (Source: TradingView)

On Wednesday, Fed Chair Jerome Powell said that the central bank will use its tools ‘pretty vigorously now’ to restore price stability. Powell flagged that it will be ‘very challenging” to achieve a soft landing and rising interest rates could cause a recession.

The all-important Chinese economy is trying to stabilise but remains committed to its zero-covid strategy. 

“Various supportive economic measures are helping, but the impact is limited,” said ANZ senior commodity strategist, Daniel Hynes, in a note on Tuesday. 

“China’s credit impulse and PMI (new orders) are rebounding from a low base. Consumer confidence has plunged across regions, amid a rising prospect of economic slowdown.”

Hynes also observed that several tin smelters in China are halting production amid falling profits. Fifteen plants that account for almost 90% of Chinese output have announced maintenance for 30-50 days.

What’s interesting is that copper prices have continued to dip in the face of alarming inventories. Copper stockpiles held in LME warehouses were approximately 117,000 tonnes, down 35% since mid-May. Stockpiles were above 2m tonnes back in January 2021.

"Supplies of industrial metals like copper are near-all-time low levels," Robert Minter, Director of ETF Investment Strategy at Abrdn told Kitco. "Maybe we have enough copper to meet current demand, but we can't take any significant demand surprises in industrial metals."

"U.S, Europe and China are all chasing the same metals used for renewable energy, and there is concern that there isn't enough material for everyone," he said. Adding that commodity prices have to rise to incentivise producers to bring more supply to market.

At least for now, copper prices say otherwise and continue to bleed.

Copper futures vs. Oz Minerals (blue), Sandfire (orange) and 29 Metals (yellow)