Copper’s Slide Signals Mounting Recession Concern

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Copper prices have fallen to their lowest level in nearly two years, with investor concerns about an economic slowdown intensifying.

The most actively traded copper futures contract finished Wednesday at $3.408 a pound, its lowest settlement since November 2020. That has copper, used in everything from construction to electronics, on pace to decline for five consecutive weeks.

Behind the fall is concern about slowing demand as the Federal Reserve raises interest rates and as China, a leading user of the metal, has a sluggish recovery from Covid-19 lockdowns. Copper, which is particularly sensitive to expectations for the world-wide industrial outlook, is sometimes called Dr. Copper because of its use as a gauge of economic health.

Many investors have unwound bets on copper. Hedge funds and speculators have turned net-bearish, with more wagers on falling copper prices than on gains. That has pushed net positioning to its lowest levels in more than two years, according to Commodity Futures Trading Commission data tracking futures and options through the week ended June 28.

Copper hit record highs earlier this year partly because of supply concern related to the war in Ukraine and sanctions on Russia, a metals producer. Copper has since retreated by about 30%. Rising recession fears have lately weighed on stocks, bonds and commodities. A jittery revival in China has led economists to be downbeat about its economy given a darkening global backdrop and the risk of further Covid-19 outbreaks.

“We don’t anticipate base metals’—copper’s included—outlook to improve until we see a change in Chinese demand,” said Darwei Kung, head of commodities and portfolio manager at DWS Group, an asset-management firm.

Analysts expect copper to extend declines to finish the year. The Fed has been hiking interest rates at the most aggressive pace since the 1980s to tame inflation, and the lingering impact of lockdowns and travel restrictions in China is adding to the economic woes. China, the world’s largest commodity buyer, accounts for roughly half of global copper consumption.

Some signs suggest the economy is already cooling. S&P Global’s U.S. composite purchasing managers index, which measures activity in both the manufacturing and services sectors, declined in June to its lowest reading in five months, reflecting slower growth. A measure of U.S. home-builder confidence fell in June for a sixth straight month, a potential sign of decreasing demand for the copper used in pipes, wiring and appliances.

Other base metals have reversed war-driven gains. The London Metal Exchange Index, which focuses on aluminum, copper, nickel, zinc, tin and lead, and the S&P GSCI Industrial Metals Index wrapped up the second quarter with the largest percentage declines since 2008.

Copper prices could rebound if the Fed slows rate increases and Chinese demand recovers. Mining companies, for their part, could moderate investment in production, focusing instead on dividends and share buybacks.

Some analysts argue that copper hasn’t always been a reliable recession indicator. Declines in copper presaged recessions in 1980 and 1989, but at other times the metal has fallen during expansions or climbed before recessions, according to a note by Nicholas Colas, co-founder of DataTrek Research.

While Zhiwei Ren, portfolio manager at Penn Mutual Asset Management, forecasts a recession in the next six to nine months, he said he thinks the transition to an economy less dependent on fossil fuels will lead to commodity gains in the future. He plans to buy the stock of mining companies. “Longer term, I’m very bullish on commodities,” Mr. Ren said.

Write to Hardika Singh at

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