Copper fell to the lowest since 2017 as investors faced fresh evidence of a global slowdown and fading prospects for a de-escalation in the United States-China trade war.
Long known as a canary in a coal mine for the economy, copper has slid 14 percent from this year’s high in mid-April on the back of a manufacturing slump and warnings that major economies are heading into a recession. Prices fell 0.2 percent to settle at $5,610 a metric ton on the London Metal Exchange. A gauge of copper-producer shares headed for the biggest loss in more than two weeks.
United States factory activity unexpectedly contracted in August for the first time in three years, further eroding the outlook for demand. A rallying dollar has added selling pressure on industrial metals this quarter amid a steady erosion in the purchasing power of buyers holding other currencies. China’s onshore yuan fell to the lowest since 2008 on Tuesday 3rd September 2019.
“The selling has already gone a long way, but we can’t rule out the possibility copper will go lower," Xiao Fu, head of global commodities strategy at Bank of China International (BOCI) Global Commodities (UK), said by phone from London. “If the macro picture remains weak or we see other negative shocks coming into the picture, we could see further sell-offs."
Copper is slumping as China's currency comes under pressure. While delegates from Washington and Beijing struggled to agree on terms to restart trade negotiations, research houses from Oxford Economics to Nomura warned that China’s economic activity will soften further. China’s growth reached 6.2 percent in the second quarter, the slowest pace in almost three decades.
Lead, nickel, tin, and zinc also declined in London, while aluminum advanced. Sentiment in metals markets took a further hit as global electric vehicle sales fell for the first time in modern history, fueling doubts about one of the few bright spots for demand.
The poor macroeconomic conditions have also negated signs of rising spot demand for metal on the London Metal Exchange (LME). Orders to withdraw copper in warehouses tracked by the bourse rose to the highest in a year on Tuesday, continuing a sharp rebound seen since late August.
Shanghai Metals Market data shows the premium for physical copper in China increased to a fresh year-to-date high of $77 a ton, reflecting a marginal improvement of demand in August combined with a reduced level of scrap substitution to the cathode, ING senior commodities strategist Wenyu Yao said in an emailed note. In the meantime, the average operating rate from copper wire and cable manufactures in August has risen from July, Yao said.
The muted price reaction is understandable, with broader markets bracing for a further possible deterioration in economic data, particularly in the United States and China, Fu said.
“There are further risks coming up, given the lackluster backdrop for global demand growth," according to Fu.