Falling prices of industrial metals have struggled to find a floor, aluminium and copper prices both significantly lower than their highs in May. 3-month LME copper declined nearly 20% from its high of over 11,000 \$/MT it reached less than three months ago. Copper traded below 8,800 \$/MT several times last week following a sharp sell off in equities globally which was triggered by a jump in the US unemployment rate, raising concerns of a recession and there was even talk of an emergency rate cut. Aluminium largely tracked these moves. The lower prices appeared to attract more physical demand as seen by the increasing Yangshan Premium, the price to import refined copper into China from LME warehouses, which could limit any further weakening of copper prices. US jobs data at the end of last week eased concerns of a US recession, base metals advanced and copper rallied back above 9,000 \$/MT.
The rapid increase in copper prices in May was initiated by short sellers being forced to buy back the metal to cover further losses as prices increased. The following 20% fall in prices began by this unwinding, then came a series of disappointing manufacturing PMIs globally, particularly in China. Markets had hoped that with the conclusion of China’s Third Plenum would come sufficient stimulus to support the economy, unfortunately this was not the case, and only moderate measures were announced. Managed money selling increased and combined with weakening fundamentals and concerns over US election volatility accelerated downward momentum in prices. The proposed tariffs risk with a Trump win is viewed as a negative for industrial metals prices.
Low inventories in the red metal seem a distant memory, global inventories have continued building to levels above of the 5-year range, bucking the trend of seasonal inventory draws.
The longer-term supply concerns have not changed but recent softening demand has reduced the risk of an imminent deficit. Today news broke that workers at the largest copper mine, BHP’s Escondida in Chile, will strike over pay despite being offered a bonus of \$28,900. The mine produces 5% of all globally mined copper annually. These strikes have been known to go on for a long time, in 2017 Escondida had a strike of 44 days.
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