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Copper has more room to fall in the near term, say analysts

Prices of copper continued their downward trajectory on Tuesday after recently witnessing their biggest quarterly percentage decline in more than a decade. The metal fell 1.5% on the London Metal Exchange to $7,472 a tonne by 11:31 am local time, headed for its lowest close since November 2020. Other metals were flat to lower.

Copper is seen as an economic bellwether because of its use in many applications and products including construction, household appliances and electric vehicles. Falling prices indicate a sombre outlook as fears of a global economic slowdown grow. The metal may still have room to fall before its role in renewable energy provides any long-term support, say analysts.
Goldman Sachs Group, which is often bullish on commodities, has cut its near-term price forecasts for copper in anticipation of a sharp slump in consumer spending and industrial activity as Europe’s energy crisis deepens.

With investors selling the metal in droves and prices now 40% below the bank’s expectations, it has warned that the slump could still have more distance to run. The bank sees copper at $6,700 a tonne in the coming three months, compared with an earlier forecast of $8,650. The metal has slumped almost 30% from a record high in March. Before the fears of a slowdown in the US surfaced, copper saw an impressive rally over the last two years when prices jumped manifolds. Prices started to soften after Russia’s squeeze on energy supplies roils economies, especially in Europe.

The copper market is facing a surplus for the coming two years as demand wanes and mines keep expanding. Goldman warned that lower prices may be needed to encourage producers to ration supply, though it said actual production cuts would only be needed in a worldwide recession. Still, the bank said the metal is on track to reach $15,000 in 2025, citing a “clear structural bull story” as mine supply peaks, according to a Bloomberg report. It sees copper at $7,600 in six months and at $9,000 in 12 months, against previous forecasts of $10,500 and $12,000. And not just copper, most industrial metals have witnessed a sharp correction in recent times. Prices of lead and aluminium have sharply declined.

“On an average, energy, base metals, precious metals and agricultural prices are now down 25% from 52-week highs as markets are anticipating a global slowdown morphing into a full-blown global recession,” SBI said in a recent research report.

Prices of iron ore, an important ingredient for making steel, sank to a seven-month low, with the demand outlook dimming on fears that China may again impose strict Covid-19 curbs. Iron ore dropped 5.1% in Singapore to $104.40 a tonne as of 4:40 pm, following a 2.6% decline on Monday. Futures in Dalian closed 4.6% lower, while steel contracts in Shanghai declined, Bloomberg data showed.

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