Base metals are on track for the worst quarterly decline since the 2008 global financial crisis, as China’s economy recovered only gradually and fears of a global recession intensified, according to Bloomberg.
The London Metal Exchange (LME) index has plunged 23% since the end of March, although the decline has been magnified by the rise in prices that month after the Russian invasion of Ukraine.
Tin has been the worst performer with a 38% slump, while aluminum is down about a third and copper is down about a fifth. It will be the first quarterly decline for the entire index since the start of the pandemic.
A gauge of Chinese factory activity expanded in June for the first time since February, as controls imposed over COVID-19 outbreaks were relaxed. Nevertheless, the improvement was rather tenuous, and the weakness of the country’s real estate market continues to weigh on demand for metals.
Additionally, the Zero COVID policy remains in place despite the relaxation of certain quarantine rules, meaning there is a constant risk of further restrictions if the number of cases were to rise again.
China’s lockdowns have also had serious repercussions in Japan, where industrial production plunged 7.2% in May, far exceeding estimates of a 0.3% decline.
The country is Asia’s largest importer of aluminium, and stocks of the metal at major ports have risen to the highest level in more than six years, as demand for automobiles dwindles due to limited supply chain.
The growing threat of a recession in the US, and perhaps even globally, also continues to weigh on the market.
Federal Reserve (Fed) Chairman Jerome Powell and other central bankers warned that the world is shifting to a higher inflation regime, at the European Central Bank’s annual forum in Portugal. At a minimum, the major economies are headed for a slowdown that will curb construction activity.
With information from Bloomberg.