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Copper Prices: Is Copper Prices Bottomed Out Or Still Dropping Due To Global Recession?

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by - 8/9/2022 4173 Views

Copper prices are flatly down due to the threat of a global recession in developed economies.

Copper Prices: Is Copper Prices Bottomed Out Or Still Dropping Due To Global Recession?

"Copper Base Metal" is often regarded as a leading indicator of the global economy. Because of Copper's widespread applications in most sectors of the economy - from household applications and factories to electronics, power generation and transmission — demand for Copper is viewed as a reliable barometer of economic health. Rising Copper prices denote strong economic growth, and declining Copper prices suggest weak economic growth.

Copper prices have recently hit a 20-month low of Rs.610.30/KG (COMEX - 3.25 USD/lbs) in mid-July as strengthening supply-demand side challenges, slower economic activity, weaker demand outlook and a high US dollar index. All these signs point toward a potential global recession, raising a key question: Is Copper prices bottomed out or still falling? When will Coper prices stop falling and rebound? What is the outlook for Copper prices in 2022?

Supply-Demand Side Headwinds In Copper Prices

On the Supply Side

Due to the increased protest in the world’s largest Copper mine (Chile and Peru) by local communities, Copper production was muted and caused supply disruption, which also impacted Copper prices.

MMG announced that it had suspended its Copper production targets for the year due to a 60 per cent drop in output caused by a long protest at its Las Bambas mine in Peru. On the other hand, last week, Vale and Antofagasta cut their 2022 Copper production outlook.

On the Demand Side

Due to economic slowdown trends and weaker manufacturing activities globally, the demand for Copper Base Metal was lowered in major countries, especially in the top metals consumer, "China". Because of the Covid outbreak and the re-imposition of China’s strict lockdowns in the second quarter dampened the demand and import-export of Copper Base Metals.

What Is Pushing Copper Prices Further Down?

Other Factors Influencing Copper Prices

Interest Rate Hike

In June, the major central banks, including the US and Europe, significantly raised interest rates, further pushing Copper prices down and weakening the demand growth. Meanwhile, the central banks announced further increasing the interest rate in the coming days. Investors and traders added concerns that the upcoming interest rate hikes would depress global economic activity.

US Dollar Index

Because of the aggressive interest rate, the US dollar index has hit 20-year highs; a stronger dollar index is putting additional pressure on Copper prices. As the USD strengthens, dollar-denominated metals become less appealing to buyers holding other currencies.

The Threat Of A Global Recession

Copper prices are now flatly down due to the threat of a recession in developed economies, including the United States and Europe. The major central banks have begun to raise interest rates aggressively, resulting in lower GDP growth, consumer spending, and funding costs for businesses in these countries.

Have Copper Prices Bottomed Out?

Copper prices have dropped 27 per cent since the end of May and more than 34 per cent since the March historic hike at the start of the Russia-Ukraine war. The main drop in Copper prices is that the ongoing Covid lockdowns in the top metals consumer, China lessened the base metals demand.

But this scenario is expected to clear up in the second quarter, but the situation gets worse than expected. China re-imposed Covid lockdowns in the second quarter, significantly metals demand lessened, and Copper prices dropped sharply, hitting almost 20-month lows.

And now, Copper prices are improving slightly on moderately high demand amid supply concerns and the ongoing fears of the global economy into recession due to consistent, aggressive interest rate hikes.

At the same time, China's State Grid plans to invest more than 150 billion yuan ($22 billion) in the second half of 2022 in ultra-high voltage power transmission lines, expected to drive demand for Copper Base Metals in the future. So, we can expect a lower supply, and an improvement in the demand outlook could further boost Copper prices.

When Will Copper Prices Stop Falling And Rebound?

As soon as the global economy reopens and the industrial activities attempt to a normal state, and in need of more Copper, Copper prices will automatically boom. China has also announced significant stimulus packages to recover their pandemic-affected economy, which will also probably helps to support Copper prices.

What is the Outlook For Copper In 2022?

Copper Prices: Is Copper Prices Bottomed Out Or Still Dropping Due To Global Recession?

In the first quarter of 2022, Copper prices crossed Rs.870/KG (COMEX - 4.94 USD/Lbs) because of high demand amid war threats. However, Copper prices dipped in the second quarter, hitting nearly 2-year lows, led mostly by slowdowns in China and volatilities in the global economy.

In the coming months, Copper prices are expected to fall further, caused by a slower-than-expected demand, economic growth recovery from China, and downward pressure from rising interest rates.

While the long-term demand outlook for Copper remains bullish, the short-term demand growth appears bearish, keeping Copper prices on the rising trend. The best example is the ongoing global energy transition, which boosts demand and Copper prices through EVs and other electrification.

Global EV sales "reached 6.3 million in 2021, up 102% year on year, with this number expected to rise to 26.8 million units in 2030, according to the latest analysis from S&P Global Platts Analytics." So, the near-time crisis is pushing Copper prices to the darker side, and the long-term future for Copper prices is still brighter, which can make Copper prices hike to historic highs.

The current economic downturn activities made Copper prices decline dramatically. However, Copper prices are still in their rally, and investors are predicting Copper prices may hit new all-time highs in the coming days because of their long-term usage in the global economy.

While I write this Article Copper prices are trading at,

MCX Copper Prices (INDIA): Rs.656.9/KG

COMEX Copper Prices (US): 3.55 USD/Lbs

SHME Copper Prices (China): 60139 Yuan/Ton

Yard Copper Prices (Australia): 9.9 AUD/KG

JPX Copper Prices (Japan): 977.95 Yen/KG

Frankfurt Copper Prices (Germany): 7886.89 EURO/KG

Also, Copper Scrap prices hits 2-year lows and are now trading at,

No.1 Copper Scrap Prices (US): 3.0 USD/Lbs

No.1 Copper Scrap Prices (Canada): 4.03 CAD/Lbs

Copper Cable Scrap Prices (Mumbai): Rs.653/KG

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Category : Copper

Tags : Copper Prices, Copper Scrap Prices, MCX Copper Prices, COMEX Copper Prices

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About Jenisha Rajakumar

I'M a Research Analyst and Content Creator at RIM. Currently I'm researching on Copper Prices around the Globe and the impacts on Copper Scrap Prices with regard to COMEX, LME, SHFE and MCX. .... more info


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