Copper slumps over China’s low demand, gloomy industrial activities

COPPER PRICES PLUNGED AMID DEMAND concerns in China, the world’s largest consumer, following reports of a decline in factory activities which slipped at the fastest pace in two years, while a firm U.S. dollar also weighed on sentiment.

Three-month copper on the London Metal Exchange (LME) lost 0.8 percent to $10,288 a tonne, while the most-traded May copper contract on the Shanghai Futures Exchange (ShFE) plunged 0.2 percent at 73,370 yuan or $11,559.25 a tonne.

According to market data, most Asian factories saw little activity in March, as a dive in Chinese demand and rising raw material costs attributed to the Ukraine war extended strains to companies already suffering from lingering supply chain disruptions.

The resurgence of COVID-19 cases in the world’s most populous country has for over a week, dealt a heavy blow on industrial and commercial activities, with reports that China’s financial hub, Shanghai is set to expand COVID-19 curbs to include the western half of the city and extend restrictions in the eastern region where thousands of inhabitants have already been forced on lockdown.

Natalie Scott-Gray, senior analyst at broker StoneX, said the presence of COVID-19 despite vaccinations is expected to continue to impact both the supply and demand side of the equation for base metals this year, with countries that practise zero tolerance, such as China, experiencing the heaviest risk.

Meanwhile, copper output in Chile, the world’s largest producer of the red metal, saw a seven percent year-on-year decline, falling to 399,817 tonnes in February, leading to expectations of a surge in the prices of the metal in the long term despite the fall in demand.

Other base metals also settled lower on the world’s oldest and largest market for industrial metals as LME aluminium plunged 0.3 percent to $3,480 a tonne, zinc lost 0.2 percent to $4,164 a tonne, lead was down 1.1 percent to $2,390 a tonne, and tin was 0.1 percent lower at $42,855 a tonne.

Valuations of the metals in the Shanghai market recorded similar declines as aluminium slipped 0.3 percent, zinc fell 0.1 percent, nickel dropped one percent, lead shed one percent, and tin dropped 0.1 percent.

Due to the UK government’s 35 percent additional duties on Russian base metals and in its bid to curb volatility in the base metals trade, the LME said it has suspended the placement of Russian-branded base metals in its UK warehouses.

The LME noted further that the Russian base metals could not be put in its warehouses unless it could be proved that the exportation date from Russia was before March 25.

The list of brands set to be affected by the suspension include copper from Norilsk Nickel and Uralelektromed, primary aluminium from Rusal smelters and Boguchany Aluminium Smelter, aluminium alloy from SEAL & Co., Permtsvetmet and Rusal, and lead from Fregat.

The suspensions, the LME explained, were necessary in order to minimise the risk of any such price dislocation, and in turn any possible market disruption and disorderly market conditions resulting from the regulations.