Copper tumbled to its lowest value in over a month on Friday as top metals consumer China extended Covid restrictions, while concerns grew about a potential recession.
According to reports, some districts of China’s southern tech hub Shenzhen extended Covid restrictions on Friday, while the megacity of Chengdu went into lockdown the previous day.
Naeem Aslam, chief market analyst at Ava Trade, opined that the curbs in China would have an impact on both supply and demand of base metals due to the expected decline in the industrial sector.
“If smelters are shut down you will have less supply, but it also means less consumption, so it’s a double-edged sword,” he said.
Aslam further explained that another major reason for the downside in copper and other metals is the interest rate hikes by central banks, causing investors and traders to raise concerns about a potential recession.
According to ANZ research, market participants are increasingly concerned that Europe’s energy crisis will lead to more reduction in demand.
“The EU is likely to place restrictions on gas consumption in heavy industry if shortages persist, and these demand concerns are outweighing supply-side issues,” it added.
Ole Hansen, head of commodity strategy at Saxo Bank in Copenhagen, remarked that industrial metals are taking a beating, adding that the growth angst is most certainly having a profound impact across markets and reducing investors’ risk appetite.
Hansen observed further that an expected increase to interest rates this week by the European Central Bank also weighed on markets.
“The supply side in metals could still be equally challenged, but right now the focus is on the risk to demand from central bank actions,” he remarked.
For other base metals, LME three-month aluminium shed 0.1 percent to $2,292 a tonne, zinc was down 3.7 percent to $3,138 a tonne,lead fell 0.2 percent to $1,898 a tonne, nickel slipped 0.9 percent to $20,130 a tonne, and tin tumbled 3.9 percent to a 20-month low of $20,235 a tonne.
