Copper and iron ore prices collapse amid growth concerns and Chinese steel brakes after skyrocketing in hopes of rapid economic recovery
- Prices for copper and iron ore fell sharply in August after rising steadily since the start of 2020.
- Iron ore prices fell nearly 30% amid demand concerns and Chinese orders to curb steel production.
- “Dr. Copper” as a barometer of economic health is hit as COVID cases rise.
- See more stories on the Insider business page.
Copper and iron ore prices have been slammed this month by demand concerns as the coronavirus crisis continues, as iron ore faces industry-specific pressure as the China is demanding restrictions on steel production, which raises questions as to whether industrial metal prices can return to highs for the year.
Benchmark iron ore prices with an iron content of 62% in August fell about 26% to trade above $ 156 per metric tonne, reaching levels not seen since February. Copper fell more than 8% to around $ 4.111 a pound, the lowest in about four months.
The downward slope comes after metal prices have climbed since March 2020, when they fell alongside a collapse in U.S. stocks as the COVID-19 pandemic threatened to plunge economies around the world into recession.
“If you think about the S&P 500 market trough from March 2020 through the first half of this year, you saw copper continue to rise and this argument of strong metals like copper and strong markets made sense because prices of the Higher copper means economic growth and economic activity and a need for copper, ”David Keller, chief market strategist at Stockcharts.com told Insider.
Iron ore like copper is an important industrial metal because it is a key raw material used to make steel. The production volume of about 2 billion tons and the export volume of about 1.5 billion tons make iron ore the third raw material in terms of production volume after crude oil and coal, and the second most traded commodity after crude oil, according to World Steel. Association.
The rollout of COVID-19 vaccinations along with global fiscal and monetary stimulus efforts have helped support rising metal prices. But investors appear to be becoming more cautious about the prospects for further economic recovery as coronavirus cases increase due to the highly transmissible Delta variant.
Meanwhile, the US Federal Reserve appears on track this year to cut back on emergency asset purchases it has put in place to help the economy weather the COVID crisis, a worrying prospect for some investors who see central bank asset purchases as promoting economic recovery and fueling demand for industrial metals like copper as construction projects restart or take off. Supply constraints have also helped push copper prices up this year.
For iron ore, Bank of America said this week that prices peaked in part as supply caught up with demand. He noted that steel production in China had recorded a series of seasonal highs since June 2020 largely due to a rebound after the start of the COVID pandemic.
“That said, production growth has slowed,” driven by a confluence of factors, said BofA commodity strategists led by Michael Widmer. “Looking first at demand, growth came to a halt as activity became more uneven, with particular headwinds in construction and autos.”
In addition, the Chinese government has ordered steel mills to limit production in part to reduce carbon emissions. He also changed tax incentives in May and July to better control steel production.
“It matters [as it] removes the incentive to operate steel mills for exports, ”the strategists said.
Measures that could boost iron ore prices include further stimulus in China and a steel resupply ahead of the Winter Olympics, which could prompt further plant closures to contain emissions, said BofA.
Keller of Stockcharts.com said the price of copper tested the 200-day moving average of $ 4 a pound this week, the first such test since June 2020.
“This whole idea of infrastructure trading – names of industrialists and machines – is really coming out here. While I see it as a long-term game, certainly a short-term one, copper weakness is fitting that it is not. It’s not the perfect time to make this bet, ”Keller said.