Strategists say that copper, a key manufacturing metal, has fallen in price, suggesting that investors are taking a negative view of the economic outlook.
Copper is considered the most important indicator when measuring the health of the economy because it is used in many fields. However, copper prices are falling although there is little sign of a sharp drop in demand for them or an increase in supply.
“Actually quite the opposite. We are seeing signs of a strong recovery in China, which is still sticking to its zero Covid strategy,” said ANZ’s Daniel Hynes.
Current demand for copper remains strong, but investors believe tightening monetary policy will lead to lower growth. It is this prospect that causes the copper to depreciate.
“That tells me investors don’t seem overly optimistic about the economic outlook,” Daniel Hynes stressed.
Previously, the copper price recorded its biggest quarterly decline since 2011 in the second quarter of this year. Three-month copper on the London Metal Exchange was at $7,341 a tonne on the morning of July 14 Asian time, a significant decrease since the beginning of June.
The price of copper depends on the change in global sentiment with the Fed’s interest rate policies. However, tight supply combined with China’s implementation of fiscal stimulus over the next 6 to 12 months should boost demand.
Chinese President Xi Jinping called for “all-out efforts” to build infrastructure in April. China will also set up a state-managed infrastructure investment fund.
However James Kan, head of Asian basic materials research at UBS, said restrictions aimed at preventing Covid-19 in China could reduce demand for industrial goods even if there is a shortage of industrial goods. Beijing plans to stimulate the economy through infrastructure.
Additionally, inventory growth is outpacing gains in industrial production. Therefore, the accumulation of inventory will become a problem. Even as demand for base metals skyrockets in China, inventories can still absorb that growth. Meanwhile, the rest of the global economy is likely to slow down, causing demand to slow down as well.
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