Experts agree that a global recession is now a foregone conclusion. Though they continue to argue about the potential extent of the damage and which countries may evade repercussions, few see any way to avoid a downturn. As usual, one of the first markets to react to the growing concern is industrial metals.
Back on September 6, the Financial Times was sounding the alarm on industrial metals. At the time, the S&P GSCI had just witnessed a crushing descent from March highs. In fact, the index had largely risen since the beginning of the pandemic, when prices averaged in the mid $260s per share. However, this past trading session, prices are again approaching the $400 per share support level.
The main reason many industry insiders remain convinced of an impending recession is the shocking number of factors at play. More than two years into the COVID pandemic, China still suffers frequent lockdowns and shipping delays. Seven months into Russia’s Ukraine invasion, and Putin is still rattling his saber. More importantly, he’s severely restricted energy supplies to Europe VIA the Nord Stream 1 pipeline.
The energy crisis seems the main culprit paving the way for a recession, especially in the U.K., According to Clive Burstow, Barings’ head of natural resources, “This is all about recession and recession fear.” He added that energy woes are the main point of concern among himself and his colleagues.
Industrial Metals Demand Colliding with a Strong Dollar
The U.S. dollar is stronger than it’s been in decades, primarily due to ongoing interest rate hikes from the Fed. But while a powerful dollar sounds like great news, it’s actually big trouble for a global marketplace. After all, those companies attempting to buy goods with a weaker currency will end up paying more, further eroding demand.
Indeed, Reuters reported early Monday that LME Copper Prices reached a two-month low, falling to $7.375 per ton. This represents the lowest level since late July and a 32% drop from March’s record highs. Aluminum also dropped, reaching $2,151 a ton – an 18-month low. Tin, meanwhile, rose a modest 1.5%.
According to T.D. Securities Commodity Strategist Ryan McKany, the outlook appears weak for metals. “Base metals seem to be losing some supply-side support and are looking quite vulnerable to deteriorating demand conditions,” he said.
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