Prices for certain key metals have lost some ground amid increasing concern about a drop in demand after the U.S. Federal Reserve flagged a potential recession if a steep rate increase is implemented, analysts said.
The spot price for copper, which is considered a key economic bellwether, fell 3.4% to $3.98 per pound during the week ended June 24, while the gold spot price decreased 1.9% to $1,823 per ounce, Haywood Capital Markets said in a same-day note.
Copper realized the majority of its loss after Federal Reserve Chair Jerome Powell signaled a commitment to curb inflation, increasing the possibility of a hard landing, Saxo Bank wrote in a June 24 note. The bank also said COVID-19 lockdowns and restrictions in China have affected the country's copper demand.
Weakened demand is expected to further soften commodity prices, and China's COVID-19 policies are key to lifting prices, according to a June 22 note from Commonwealth Bank of Australia analysts.
"We think a declining price profile across most mining and energy commodities is justified in light of a weakening demand outlook," the analysts wrote in a separate June 23 note. "A scenario of rising prices from here is likely contingent on China relaxing its COVID-zero policy. The policy has weighed on China's economic growth, especially in April when strict lockdowns in Shanghai and mobility restrictions stressed supply chains through China."
Copper prices have also been affected by a strike at Codelco's operations in Chile due to the state-owned mining company's lack of investment in the Ventanas smelter, ING Bank said in a June 23 note. The mining company said it was able to continue operations despite the strike, contradicting a comment by the workers' union that all of the mining operations were affected. The strike ended June 23.
Micro developments have also affected prices for certain metals on top of macro factors, pointing to a tight market outside of China, ING Bank analysts said, noting the cash-three month spread for zinc hit a three-year high of $160 per tonne on June 22.
Meanwhile, 62% iron ore CFR China prices declined 21% since June 7 to $115/t due to concerns that demand growth in China will not materialize as expected with continued COVID-19 restrictions, according to the Commonwealth Bank of Australia analysts.
"Demand has played a larger role than supply in the current surplus facing China's steel sector," the analysts said June 22. "While China's daily steel output has accelerated from January-February to May, China's cumulative steel output in the first five months of 2022 though was 8% [per year] lower, indicating some supply restraint."
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