Since the Great Recession, metals have not fallen this dramatically

27 Jun 2022 , 11:08 AM

It represents a sharp reversal from the previous two years when metals rose on a wave of confidence following the shutdown, inflationary projections, and supply bottlenecks. Currently, there is inflation and a shortage of supplies.

As prices are decimated by recession fears, industrial metals are on track to have their worst quarter since the financial crisis of 2008. Tin just fell 21% in its worst week since a crisis in the 1980s that shut down London trading for four years, while copper, the great economic barometer, has recoiled into a bear market from a record four months ago.

It represents a sharp reversal from the previous two years when metals rose on a wave of confidence following the shutdown, inflationary projections, and supply bottlenecks. Currently, there is inflation and a shortage of supplies. Prices, however, are falling as concerns about a slowdown in industrial activity across major nations coincide with weakening Chinese demand.

For a metal like copper, whose applications range from sophisticated electronics to heavy industrial machinery, the market is closely tied to
changes in the economy. The market’s retreat is a sign from the commodities markets those efforts to bring prices back under control are showing some early success. Considerably as Chinese Covid-19 lockdowns begin to loosen, the mood in the metals market has deteriorated, and there are indications that dealers there are betting that copper prices will fall even further.

Chinese industrial activity is already declining, and according to S&P Global Indices released on Thursday, US manufacturing output hit a 23-month low while European manufacturing output shrank for the first time in two years. Nevertheless, investors appear to gamble expecting considerably greater losses in demand in the upcoming weeks based on the size of the rapid selloff in copper and other industrial metals.

On the London Metal Exchange, copper fell to an all-time low of $8,122.50 a tonne on Friday. With an 11% decline so far in June, copper is on pace for one of the biggest monthly losses in the previous 30 years.

However, the supply for copper and a number of other metal markets continues to be among the tightest ever. Even ardent copper bulls like Goldman Sachs Group Inc. had warned that demand destruction may be essential to assist ease the strain as inventories around the world were dropping and there was little indication of major new supply.

The Federal Reserve raised interest rates by 75 basis points earlier this month and issued a warning that its attempt to rein in rogue inflation risked triggering a recession, which is when the slump in industrial metals began. Although investors in other markets began to price in an earlier conclusion to the Fed’s rate-hike cycle last week, the selloff continued to intensify.