Copper surges past US$9,000, iron ore drops
Supply cuts versus headwinds
Prices for two of the world’s most important mined commodities are diverging quickly, with copper rallying above US$9,000 a ton as supply cuts hit the market and iron ore sinking as demand headwinds mount.
Copper surged almost five per cent this week, ending a months-long spell of inertia, as investors hone in on risks to supply at mines and smelters. Tentatively, traders are also warming to the idea that the worst of a global downturn is in the past, particularly for metals like copper that are increasingly used in electric vehicles and renewables.
But signs of the headwinds in traditional industrial sectors are still plain to see in the iron ore market, where futures fell below US$100 a ton for the first time in seven months on Friday. Investors are betting that China’s yearslong property crisis will run through 2024, keeping a lid on demand.
The steelmaking ingredient has shed more than 30 per cent since early January as hopes of a meaningful revival in construction activity faded. Loss-making steel mills are buying less ore, and stockpiles are piling up at Chinese ports.
Sentiment has soured since the recent National People’s Congress in Beijing, where policy-makers set an ambitious five per cent goal for economic growth, but offered few new measures that
would boost infrastructure or other construction-intensive sectors. The latest drop will embolden those who believe that the effects of President Xi Jinping’s property crackdown still have significant room to run, and that last year’s rally in iron ore may have been a false dawn.
On Friday there were fresh signs that weakness in China’s industrial economy is hitting the copper market too, with stockpiles tracked by the Shanghai Futures Exchange surging to the highest level since the early days of the pandemic. The hope is that headwinds in traditional industrial areas will be offset by an ongoing surge in usage in electric vehicles and renewables.
Further afield, industrial conditions in Europe and the U.S. still look soft, but there’s growing optimism about copper usage in India, where rising investment has helped fuel blowout growth rates of more than eight per cent — making it the fastest-growing major economy.
For now, the main catalyst fuelling copper’s rally is an unexpected tightening in global mine supplies. That’s been driven mainly by last year’s closure of a giant mine in Panama, but there are also growing worries about output in Zambia, which is facing an El Niño-induced power crisis.