Copper prices signal investors negative for economy: ANZ
A smelter in Wuzhou, China in January 2022. Falling copper prices suggest investors are negative about the outlook for the economy, a commodities strategist at ANZ Bank said.
He Huawen | Visual Group China | Getty Images
Falling copper prices suggest investors are negative on the outlook for the economy, a commodities strategist at ANZ Bank said.
Copper is considered a leading indicator of economic health due to its use in many industries.
At the moment, prices are falling even though there is little indication of a sharp drop in demand or an increase in supply, said Daniel Hynes of ANZ.
“In fact, it’s the exact opposite – we’re actually seeing signs in China of that demand picture improving,” he said.
But investors believed that tighter monetary policy would lead to weaker growth, and that’s reflected in copper prices, he told CNBC’s “Street Signs Asia” on Tuesday.
“That tells me that investors are particularly bearish on the economic outlook,” he said.
The price of the red metal recorded its biggest quarterly decline since 2011 in the second quarter of this year, according to Reuters.
Three-month copper on the London Metal Exchange was at $7,341 a tonne Thursday morning in Asia, after falling sharply since early June.
Copper actually looks “relatively promising,” Hynes said.
He acknowledged that the performance of the copper market depended on how global sentiment evolves as the US Federal Reserve raises interest rates, but said supply issues are expected to keep the market tight and fiscal stimulus in China over the next six to 12 months will drive demand.
Chinese President Xi Jinping called for an “all-out” effort to build infrastructure in April, and Reuters said the country would set up a state infrastructure investment fund.
But James Kan, head of basic materials research for Asia at UBS, said Covid restrictions in China could dampen demand for industrial goods despite Beijing’s plans to boost its economy through infrastructure.
“Potentially, mobility restrictions will weaken the return pathways of demand in some way,” he told CNBC’s “Squawk Box Asia” on Tuesday.
A rapid recovery in demand is not the Swiss investment bank’s base case scenario, Kan said.
He said inventory growth is outpacing the recovery in industrial production and inventory accumulation will become a problem.
Even if demand for base metals jumps in China, inventories will be able to absorb this growth. Meanwhile, the rest of the global economy is expected to slow, which will keep demand in check.
“I think the overall balance between supply and demand [is] still likely won’t be supportive of a good price rally,” Kan said.
– CNBC’s Evelyn Cheng contributed to this report.