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Iron ore price tumbles as recession fears fuel commodities selloff
Iron ore and steel prices tumbled on Friday as prospects of a sharp global economic downturn fanned fears of a slump in demand for commodities, despite signs of a rebound in manufacturing activity in top metals consumer China.
The spectre of a global recession fed an already clouded demand outlook for iron ore in China, the world’s biggest steel producer, where mills have idled dozens of blast furnaces recently in a bid to reduce high inventories amid weak orders.
Iron ore’s most-traded September contract on China’s Dalian Commodity Exchange ended daytime trade 6.9% lower at 747.50 yuan ($111.47) a tonne, extending losses to a second day.
On the Singapore Exchange, the steelmaking ingredient’s front-month August contract was down 4.3% at $113.90 a tonne by 0703 GMT.
In the spot market, the benchmark 62%-grade material fell $2 to $122 a tonne on Thursday, wiping out its 2022 gains, SteelHome consultancy data showed.
“It’s not just China where steel output is under pressure,” said Warren Patterson, head of commodities strategy at ING. “Expectations of slowing economic growth, and the growing risk of recession, are clearly not great for global steel demand.”
Asia’s manufacturing activity stalled in June as many companies were hit by supply disruptions caused by China’s strict Covid-19 lockdowns, while sharp economic slowdown risks in Europe and the United States reinforced fears of a global recession.
A slowdown in China’s steel production also indicates its resolve to continue reducing annual output in line with its decarbonisation goals.
In China’s biggest steelmaking province Hebei, some mills had reportedly opted to implement an annual overhaul of furnaces earlier than usual.
Construction steel rebar on the Shanghai Futures Exchange fell 2.5% after a six-session rally, while hot-rolled coil shed 2.2%. Stainless steel dropped 2.4%.
Dalian coking coal slumped 6.1% and coke dropped 3.8%.
Copper, zinc, nickel price rout continues despite rebound in China manufacturing
Copper’s second quarter performance was the worst in more than a decade, but the start of Q3 saw no let up in the bloodletting.
A rebound in manufacturing in China, which consumes more than half the world’s industrial metals, was not enough to offset weakness in the copper market after data released on Friday showed inflation in the eurozone jumping to a record high.
Copper for delivery in September fell over 4% from Thursday’s settlement, touching a low of $3.55 per pound ($7,834 per tonne) in morning trade on the Comex market in New York, the lowest since February 2021. The most-traded August copper contract in Shanghai ended the day 4% weaker at 61,630 yuan or $9,190.
In London aluminium slipped 1.9% to $2,400 a tonne, zinc dropped 3.5% to $3,045 bringing its losses for the week to 9% and nickel eased 2.4% to $22,150. Tin fell 4% to $25,400 on Friday, but for the week the metal widely used in the electronics sector managed to gain 6%. Lead was the only gainer on Friday – up nearly 1% to $1,924.
Further to fall
Chinese PMI data showed manufacturing activity hit a 13-month high in June, but in a note Capital Economics said market participants, like the research firm itself, are assuming that the indicator “reflects the lifting of lockdown restrictions rather than an economic revival”:
“It is increasingly clear that concerns about demand are taking precedence of supply issues in the metals markets.
“The prices of all the base metals fell by over 20% in the second quarter, despite still high energy prices (which raise the cost of metals production), ultra-low exchange stocks and, in most cases, subdued refined output.
“We think that prices have further to fall in the second half of the year, but we suspect that the big falls are now behind us.”
Shares of major copper producers came under renewed selling on Friday. Units of BHP trading in New York lost 4.8%, Rio Tinto gave up 3.3%, Vale traded down 4.6% while Glencore was the worst performer with a decline of 5.6% in early afternoon trade in New York.
Gold price keeps its shine as other precious metals fade
Investors cut holdings in exchange-traded funds for silver, platinum and palladium in the second quarter on fears that a potential recession will reduce industrial demand, but gold assets held up because of its role as a haven, and that may persist.
Gold-backed ETFs shrank by just over 1% in the three months through June, or 43 tons, after an 8% surge in the first quarter helped by Russia’s invasion of Ukraine, according to data compiled by Bloomberg. By contrast, silver holdings contracted almost 5%, and the outflow in tonnage terms was the biggest since 2011.
The amount in gold ETFs is the lowest since March, while assets in the other three precious metals are around the smallest since 2020.
Gold has held up well relative to silver and platinum. One ounce of gold now buys 90 ounces of silver, the most in almost two years.
The resilience of gold offers yet more evidence to support its role as a component in portfolio asset allocation, in contrast to silver, platinum and palladium, which have more industrial uses and are therefore more exposed to economic downturns, according to Chad Hitzeman, senior business development manager at ETF Securities.
“Where broader markets remain negative, pressured by inflation and central bank hawkishness in taming prices, we see investors holding fast to gold ETFs as a risk-off haven,” said Hitzeman, whose company offers several precious metals products to investors.
Giovanni Staunovo, a strategist at UBS Group AG’s wealth management unit, shared this sentiment. “If market recession fears are increasing, you prefer to hold exposure to gold and not to the white metals, which have a high industrial usage,” he said.