Metals rebound from their worst week in a year on China optimism

London Metal Exchange copper fell 0.2% to $8 362 a ton at 11:14 a.m. local time, while tin gained 7.1% and nickel rose 2.5%.
Image: Oliver Bunic/Bloomberg

Copper steadied and most other base metals rebounded after their worst week in a year as China’s economy showed signs of recovering and Goldman Sachs Group Inc. said global supplies were still constrained.

Early indicators for China’s economic activity tracked by Bloomberg suggest an improvement during June as Covid-19 restrictions were gradually eased. An overall gauge of the outlook returned to neutral after deteriorating for two straight months, though the recovery remains muted.

“Whether zero-Covid, the property slowdown, or a consumer lacking confidence, Chinese metals demand has been very weak over 1Q,” BMO Capital Markets metals and mining analysts led by Colin Hamilton wrote in an emailed note. “However, there is no doubt we are past the nadir in terms of activity.”

Metals are still on track for the biggest quarterly plunge since the 2008 financial crisis amid rising fears of an industrial slowdown across major economies. Tin led the rebound on Monday, paring a record 21% weekly loss that took prices to a 15-month low.

It’s a dramatic reversal from the past two years, when metals surged on a wave of post-lockdown optimism, inflationary predictions and supply snarls. Inventories remain at critically low levels in several metals markets, setting the stage for potential price spikes even as investors turn bearish on the demand outlook.

“The sharp move lower in base metals prices over the past few weeks reflects almost entirely financial liquidation pressures, rather than any deterioration in fundamental conditions,” Goldman Sachs analysts including Jeffrey Currie wrote in a note. Still, price pressures would likely linger until responses including supply cuts or “extreme” inventory reductions, they said.

London Metal Exchange copper fell 0.2% to $8 362 a ton at 11:14 a.m. local time, while tin gained 7.1% and nickel rose 2.5%. Zinc declined 1.3% to $3 307.50 a ton, erasing earlier gains after on-warrant LME inventories rose from a record low.

© 2022 Bloomberg

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