The price of copper has fallen sharply. According to analysts, this is another clear indicator of the impending recession

Jan Boháč, 28. 6. 2022

Source: Depositphotos
  • Copper, whose price rose significantly after the outbreak of war in Ukraine, is now worth at least a year and a quarter

  • The situation is significantly affected by the restrictions on the construction industry in China, with the end of which this metal is likely to become more expensive again

  • Analysts also see a number of other indicators that point to a slowdown in global economic growth

Over the last two weeks, copper prices have fallen by about 10 percent, making them at their lowest level in 16 months. However, according to economists, this seemingly positive development does not bode well. Copper, which was available on Monday for $ 3.77 (88.6 crowns) per pound, is considered an indicator of economic activity, as demand for the metal tends to increase as the economy expands and decline as it declines. . “Current copper prices are beginning to indicate that global growth is slowing,” he confirmed CNN Daniel Ghali, Director of Commodity Strategy at TD Securities.

Metal is important mainly due to its use in construction – it is used to make basic materials, but also electrical wires and water pipes. Thanks to this, experts are watching its price with concern – it has previously been shown that copper is a relatively good predictor of a recession.

In March, they bought copper in bulk, now it is no longer worth it

At the beginning of this year, or after the Russian attack on Ukraine, the price of copper soared significantly. This is because, according to S&P Global, Russia is responsible for about four percent of its global production. Traders were nervous that copper might be running out at a time when the economic recovery associated with the loosening of anti-cancer measures was intensifying, and they began to buy it in bulk.

The price of copper on world markets fell by about 12 percent compared to the beginning of the year. Source: Trading Economics

Now that concerns about the recession are emerging, metal prices are heading in the opposite direction. “Once this momentum for stockpiling has ended, global demand for commodities has begun to reconnect with global growth,” Ghali added. Thus, the falling price of copper now confirms that overall economic activity is also declining due to rising food and fuel prices. This is also confirmed by a number of other data.

The so-called Purchasing Managers’ Index (PMI), which describes the mood of entrepreneurs, found that private sector production in the US slowed significantly this month. “After the pandemic restrictions were lifted, many companies enjoyed a small boom, with consumers buying more from them than before. But now these companies are seeing households increasingly struggling with rising living costs. Manufacturers of unnecessary goods are seeing a drop in orders, ”said Chris Williamson, chief economist at S&P Global Market Intelligence.

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According to Williamson, companies are worried about future developments. This is partly due to the US Federal Reserve raising the key interest rate in an effort to curb price growth. They are currently in the range of 1.5 to 1.75 percent, the highest in the last 28 years. “Business confidence is now at a level that usually foreshadows an economic downturn, which continues to increase the risk of recession,” Williamson added.

Developments may reverse the end of restrictions in China

In addition to the United States, economic growth is slowing elsewhere in the world – for example in 19 eurozone countries, it fell to a 16-month low in June. Even worse is the situation in China, which used to be a major driver of global prosperity, but is now facing major shocks. These were mainly due to restrictions due to the covid pandemic and the subsequent collapse of the real estate market. Although the Chinese economy showed some signs of improvement in May, retail sales fell for the third time in a row, compared to last year. fell by 6.7 percent.

Nevertheless, some analysts expect economic growth to accelerate again in the second half of the year. “Prices of copper and other items should return to current levels at that point,” said Darwei Kung, portfolio manager at German investment firm DWS. Exactly when this will happen, but they have no idea, and therefore it is very likely that copper will not become more expensive for the time being, quite the opposite. “In the medium term, its prices may continue to fall, especially when we know that we are in danger of a recession,” he concluded.

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