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Copper price retreats as China’s covid woes dampen demand prospects
Benchmark London copper retreated on Friday and was on track for a fifth straight weekly loss on worries that fresh covid-19 restrictions could slow the pace of infrastructure projects and dampen demand for metals.
Three-month copper on the London Metal Exchange (LME) fell 1.7% to $7,690 a tonne by 0722 GMT.
On the Shanghai Futures Exchange, the most-traded August copper contract ended daytime trading 1.3% up at 58,960 yuan ($8,793.96) a tonne, off a session high of 60,540 yuan.
Copper rose sharply on Thursday after a Bloomberg News report saying that China was considering allowing local governments to sell 1.5 trillion yuan ($220 billion) of special bonds in the second half of the year to boost infrastructure funding.
Sources had told Reuters on July 5 that China, the world’s top metals consumer, would issue an advance quota for 2023 special local government bonds this year, with the new quota likely to exceed the 1.46 trillion yuan for 2022.
“While Chinese policymakers are considering boosting stimulus, the headwind from covid-19 restrictions remain, given China is still running a zero-covid policy,” said National Australia Bank economist Tapas Strickland.
LME copper is down more than 3% this week as heightened concerns over a potential global recession dampening metals demand also weighed on markets.
Gold price bound for worst week in over a year
Gold is bound for its worst week in more than a year despite a slight recovery on Friday, as the haven metal continues to be affected by the US dollar’s ascent and expectations of steep interest rate hikes.
Spot gold rose 0.2% to $1,744.47 per ounce, having hit a nine-month low earlier in the week. US gold futures were also up 0.2% to $1,742.60 per ounce in New York.
Lately, gold has failed to attract safe-haven flows despite growing recessions risks as investors have instead opted for the US dollar, which has marched to fresh two-decade highs amid rising bets on aggressive rate hikes by the US Federal Reserve.
The notion of another 75-basis-point rate hike by the Fed gained further traction following the latest employment data, which showed US job growth increased more than expected in June and the unemployment rate remained near pre-pandemic lows.
“The jobs data pushed down gold, already struggling after such a strong dollar rally. However, there is some bargain hunting coming through in gold here,” RJO Futures senior market strategist Bob Haberkorn, said in a Reuters note.
In its mid-year 2022 outlook report, the World Gold Council recently stated that gold, given its strategic and tactical role as a hedging asset, will likely remain relevant to investors during the second half of the year, particularly while uncertainty is elevated.
On the technical front, gold’s break below the $1,760 level could signal a further slide to $1,720, and potentially towards the 2021 lows near $1,680, said Michael Hewson, chief market analyst at CMC Markets UK.
Iron ore price down as China’s steel industry sounds alarm over crisis conditions
China’s steel mills are sounding the alarm over crisis conditions in the industry as margins plunge due to weak demand.
The starkest warning yet has come from Hunan Valin Iron & Steel Group, which met this week to discuss the rapid downturn in the sector and the measures it needs to take to ensure the company’s survival, including halting unprofitable production. Citing industry experts, the mill based in southern China said it expects the crisis to persist for five years.
Iron ore prices fell again on Friday, weighed by the gloomy demand outlook in China. Benchmark 62% Fe fines imported into Northern China fell 0.5%, to $113.68 per tonne.
Other mills in both the northwest and southwest of the country have pledged to reduce output as they wait on infrastructure spending to revive steel demand. Stockpiles have swollen way beyond seasonal norms after China’s crackdown on its property sector and its Covid Zero policy curbed construction activity. The steel industry’s purchasing managers’ index for June recorded its worst reading in a decade last week.
“The risk for China is that the current negative sentiment overcomes an expectation that Beijing’s stimulus measures will fire up the economy in the second half of the year,” wrote Reuters columnist Clyde Russell.
Nearly 90% of Chinese steelmakers suffered losses from weak sales and low prices, according to Chinese industry data provider Mysteel.
Although stockpiles were finally being drawn down at the end of the month as China rolled back some of its toughest virus restrictions, they’re still 23% higher than a year ago, according to the latest survey from the China Iron & Steel Association.
President Xi Jinping has called for an all-out push on infrastructure to rescue the economy, but it’s unlikely that will fully make up for demand lost from the real-estate sector.
Cutting output, at least from last year’s levels, is likely to suit both industry and government, as reduced supply will support prices as well as aid Beijing’s mission to cap carbon emissions from the highly pollutive sector.