Iron ore weakness to continue into 2025 and beyond, says Fitch Solutions’ BMI
Looking beyond 2024-2025, BMI analysts maintained their view that iron ore prices will likely follow a multi-year downtrend.
Base metals slumped, with copper falling further after capping its fifth consecutive monthly loss — the longest downward streak since the 2008 financial crisis — after China’s lockdown of megacity Chengdu added to demand woes.
A wave of risk aversion hit markets on Thursday, dragging copper down to near a one-month low. The Chinese metropolis of Chengdu will lock down its 21 million residents to contain a Covid-19 outbreak. The capital of Sichuan will be the biggest city to be shut down since Shanghai’s bruising two-month lockdown earlier this year.
There is concern about the outlook for metals demand as Europe’s energy crisis, tighter monetary policy by the Federal Reserve and China’s Covid Zero strategy look set to undermine global economic growth. That’s being partly offset by supply-side risks, with exchange stockpiles low and many European smelters hobbled by the power crunch.
“Chengdu’s lockdown puts the cat amongst the pigeons with a mixture of further CTA and other fund selling taking prices further south,” Alastair Munro, an analyst at Marex, wrote in a note. “This is an offer from the west rather than Chinese” speculators, he added.
The hawkish drumbeat from central banks, which spurred gains in the dollar, will also continue to put more pressure on commodities. Cleveland Fed President Loretta Mester reiterated the need to raise the US benchmark rate above 4% by early next year and said she doesn’t anticipate cuts in 2023.
Concerns over demand are outweighing continued challenges on the supply side. Chile, which accounts for more than a quarter of the world’s mined copper, reported an 8.6% decline in production in July from a year earlier. In China, Shanghai’s two-month lockdown earlier this year is still rippling through the economy, with businesses struggling with a sluggish recovery and stalled demand.
The copper market is pricing in rising expectations of more rate hikes by the Fed, Everbright Futures Co. said in a note on Thursday. Covid flare-ups in China have damped market confidence, it said.
Copper fell 1.5% to $7,682 a ton on the London Metal Exchange as of 12:20 p.m. local time, following a 4.4% slide over the previous two trading sessions. Aluminum declined 2.5%, while tin slumped as much as 8.9%.
Zinc fell as much as 6.8%, its biggest slide since March, on concerns about lower demand for the metal mostly used to galvanize steel. Last month, it rallied as high electricity prices forced one of Europe’s biggest smelters to halt production. The European Union is now moving to intervene in the energy market.
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