Copper Set to Post Worst Quarterly Performance in Over 2 Years

by Neha Anand

We are standing halfway through the year and while soaring inflation continues to be the pain point for global economy, cooling-off in prices of industrial metals is a welcome.

Global prices of base metals have fallen 7-32% since the start of the year, baring iron ore and nickel that managed positive returns in a volatile market. This has, indeed, provided some comfort to user industries in India, which have seen sharp spikes in input prices in tandem with the world trend.

Copper

"Dr Copper" — the nickname earned due to its tendency to gauge the health of the economy is on track for its biggest quarterly percentage fall since March 2020, hit by worries about a potential recession sparked by interest rate hikes and damage to demand from lockdowns in China.

Adding to the pain is dollar index, which is edging closer to 105 mark--near its 20-year high, on track to record its best quarter in over five years. Stronger USD makes dollar-denominated metals less attractive for buyers holding other currencies.

Demand revival in China is under market watch for months now, as China's factory activity snapped three months of decline in June. The authorities lifted a strict lockdown in Shanghai, buoying growth in production and new orders, while the rebound in services sector pressed on. The official manufacturing purchasing managers' index (PMI) rose to 50.2 in June from 49.6 in May, the National Bureau of Statistics (NBS) said on Thursday.

Though activity in China is gaining momentum from lengthy COVID lockdowns in April and May, headwinds, including subdued property market, soft consumer spending and fear of any recurring waves of infections, persist.

Also worrisome are Japan's factory output that witnessed its biggest monthly drop in two years in May as China's COVID-19 lockdowns and semiconductor and other parts shortages hit manufacturers.

Meanwhile, U.S. Federal Reserve chair Jerome Powell on Wednesday stuck to the central bank's hawkish stance, citing surging inflation as a bigger risk than slowing growth.

Investor sentiment has been thrown off track, as Money managers turned net short of the CME copper contract at the start of May, only to be whiplashed out of their positions by a strong price correction higher.

Funds have responded by lifting their CME short positions again, from 40,104 to 51,057 contracts. While, outright long positions have been reduced to a two-year low of 35,098 contracts.

It is indeed, demand and, demand alone thats charging from front, even as copper, along with other metals face low inventory in exchanges across London Metal Exchange and Shanghai Futures Exchange.

Stocks registered with the Shanghai Futures Exchange currently total 57,153 tonnes, down from almost 168,000 tonnes as recently as March.
Iron & Steel

Dalian and Singapore iron ore futures were on track to post a quarterly loss due to persistent demand worries for the steel-making ingredient in China.

Most-traded iron ore for September delivery on China's Dalian Commodity Exchange dropped after four straight sessions of gains, stretching its quarterly loss to about 11%. On the Singapore Exchange, iron ore's front-month July contract was on pace to mark its third consecutive monthly fall.

Strict anti-COVID measures in China and unfavorable weather conditions for construction activity weighed on ferrous markets in recent weeks, along with fading hopes of further economic support.

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The below mentioned column will give you an idea of what the price performance in global metal prices has been thus far.

Metals                                       Q2' 2022                H1'2022
Iron Ore                                       -20%                        +6.5%    
Steel Rebar                                  -12%                        -1.5%
Tin                                                 -41%                       -32%
Lead                                              -22%                       -18%
Aluminium                                    -28%                        -13%
Copper                                          -19%                       -14%
Silver                                             -16%                        -9%
Zinc                                               -23%                        -7%
Nickel                                            -28%                       +14%
LME Index                                     -24%                        -12%