(Bloomberg) — For months, the copper market has been caught in a tug of war between steadily shrinking supplies on one side, and an increasingly strained global economy on the other.
This week, the rope snapped.
Buyers on the London Metal Exchange, caught off guard by a sudden emptying of available copper in its warehouses, drove spot prices to record levels over futures Monday, prompting the exchange to take emergency measures. Trafigura Group, which Bloomberg reported was responsible for much of the withdrawals that sparked the wild moves, said it ordered metal to ship to customers who need it in Europe and Asia — supporting the argument that supply really is tight.
Read more about the LME squeeze and how it played out
By Thursday, copper was moving in the opposite direction. Futures tumbled by the most in four months, dropping with other industrial metals as investors focused on the potential hit to demand from weakness in China’s economy and the looming debt crisis at China Evergrande Group.
For anyone looking for clues on the world’s economies, changes in the supply and consumption of copper can provide valuable insight into how much factories are producing and consumers are buying.
The metal’s vast array of uses in all corners of manufacturing, construction and heavy industry mean that the market is highly sensitive to shifts in economic activity. And as the biggest consumer and producer, China is particularly key for copper.
Traders like Trafigura have been saying for months that the tight supplies could help push copper prices to fresh records. On the other hand, some investors and banks have turned on copper, as the threat of power shortages and factory slowdowns from the global energy crisis cast a pall over the outlook and weighed on prices.
Read more: Copper Bulls Get an Electric Shock as World’s Factories Slow
It’s hard to overstate the drama that played out on the copper market this week, and while inventories have ticked up a little in recent days, they remain at critically low levels. It’s not just the LME, supplies have shrunk too on rival bourses in China and the U.S.
So is the world as short of copper as the LME squeeze would suggest?
The first key point is that most of the world’s copper doesn’t actually pass through exchange warehouses — factories source their metal directly from producers or traders in long term contracts.
However, the reason that exchange inventories are so low in the first place is that supply from smelters has been falling badly short of demand, and power constraints in China are only adding to the problem.
That, combined with buoyant demand as economies seek to emerge from the pandemic, has drained stockpiles throughout the supply chain, with consumers’ yards and off-exchange warehouses also running low. At the same time, shipping delays and other logistical hurdles make it increasingly difficult to get metal where it’s needed.
Ultimately, the copper market remains physically tight, though it probably isn’t as strong as the substantial drawdown in LME inventories would suggest, Duncan Hobbs, head of research at metals trading house Concord Resources Ltd, said by phone from London.
With logistical problems, shortages and rising prices roiling the world economy, the question for traders is how much that will crimp demand for raw materials like copper. China’s economy slowed rapidly in the third quarter under the stress of a property slump and electricity shortages, while inflationary pressures are mounting around the world, squeezing both consumers and manufacturers.
For now, though copper demand in China has weakened, “supply has even weakened more,” said Eric Liu, head of trading and research at ASK Resources Ltd. Elsewhere, traders say demand in Europe and the U.S. is still holding steady for now, and the logistical bottlenecks that have snarled global supply chains show no signs of letting up.
“With the persisting power crisis, inventories will remain low,” Liu said.
TORONTO – Canada’s main stock index was higher in late-morning trading, helped by strength in energy stocks, while U.S. stock markets also moved up.
The S&P/TSX composite index was up 34.91 points at 23,736.98.
In New York, the Dow Jones industrial average was up 178.05 points at 41,800.13. The S&P 500 index was up 28.38 points at 5,661.47, while the Nasdaq composite was up 133.17 points at 17,725.30.
The Canadian dollar traded for 73.56 cents US compared with 73.57 cents US on Monday.
The November crude oil contract was up 68 cents at US$69.70 per barrel and the October natural gas contract was up three cents at US$2.40 per mmBTU.
The December gold contract was down US$7.80 at US$2,601.10 an ounce and the December copper contract was up a penny at US$4.28 a pound.
This report by The Canadian Press was first published Sept. 17, 2024.
OTTAWA – Canada’s inflation rate fell to two per cent last month, finally hitting the Bank of Canada’s target after a tumultuous battle with skyrocketing price growth.
The annual inflation rate fell from 2.5 per cent in July to reach the lowest level since February 2021.
Statistics Canada’s consumer price index report on Tuesday attributed the slowdown in part to lower gasoline prices.
Clothing and footwear prices also decreased on a month-over-month basis, marking the first decline in the month of August since 1971 as retailers offered larger discounts to entice shoppers amid slowing demand.
The Bank of Canada’s preferred core measures of inflation, which strip out volatility in prices, also edged down in August.
The marked slowdown in price growth last month was steeper than the 2.1 per cent annual increase forecasters were expecting ahead of Tuesday’s release and will likely spark speculation of a larger interest rate cut next month from the Bank of Canada.
“Inflation remains unthreatening and the Bank of Canada should now focus on trying to stimulate the economy and halting the upward climb in the unemployment rate,” wrote CIBC senior economist Andrew Grantham.
Benjamin Reitzes, managing director of Canadian rates and macro strategist at BMO, said Tuesday’s figures “tilt the scales” slightly in favour of more aggressive cuts, though he noted the Bank of Canada will have one more inflation reading before its October rate announcement.
“If we get another big downside surprise, calls for a 50 basis-point cut will only grow louder,” wrote Reitzes in a client note.
The central bank began rapidly hiking interest rates in March 2022 in response to runaway inflation, which peaked at a whopping 8.1 per cent that summer.
The central bank increased its key lending rate to five per cent and held it at that level until June 2024, when it delivered its first rate cut in four years.
A combination of recovered global supply chains and high interest rates have helped cool price growth in Canada and around the world.
Bank of Canada governor Tiff Macklem recently signalled that the central bank is ready to increase the size of its interest rate cuts, if inflation or the economy slow by more than expected.
Its key lending rate currently stands at 4.25 per cent.
CIBC is forecasting the central bank will cut its key rate by two percentage points between now and the middle of next year.
The U.S. Federal Reserve is also expected on Wednesday to deliver its first interest rate cut in four years.
This report by The Canadian Press was first published Sept. 17, 2024.
FREDERICTON – New Brunswick‘s finance minister says the province recorded a surplus of $500.8 million for the fiscal year that ended in March.
Ernie Steeves says the amount — more than 10 times higher than the province’s original $40.3-million budget projection for the 2023-24 fiscal year — was largely the result of a strong economy and population growth.
The report of a big surplus comes as the province prepares for an election campaign, which will officially start on Thursday and end with a vote on Oct. 21.
Steeves says growth of the surplus was fed by revenue from the Harmonized Sales Tax and federal money, especially for health-care funding.
Progressive Conservative Premier Blaine Higgs has promised to reduce the HST by two percentage points to 13 per cent if the party is elected to govern next month.
Meanwhile, the province’s net debt, according to the audited consolidated financial statements, has dropped from $12.3 billion in 2022-23 to $11.8 billion in the most recent fiscal year.
Liberal critic René Legacy says having a stronger balance sheet does not eliminate issues in health care, housing and education.
This report by The Canadian Press was first published Sept. 16, 2024.
