Falling Price Of Copper Is Another Warning Of An Impending Recession

Some investors view copper prices as a leading indicator of the world economy. If you are one of them, you have reason to be concerned.

What’s going on: On Thursday, copper prices fell to a 16-month low as traders unloaded the commodity. They’ve decreased by more than 11 per cent in two weeks.

“Copper prices are just starting to account for the fact that global growth is slowing,” Daniel Ghali, director of commodity strategy at TD Securities, told me.

The metal is found in a variety of building elements, including electrical cables and water pipes. As a result, it’s frequently used as a proxy for economic activity, as demand tends to rise as the economy expands and fall when it contracts. Because of its supposed ability to predict the future, traders lovingly refer to it as “Dr. Copper.”

After Russia invaded Ukraine earlier this year, the price of copper and other important metals skyrocketed. (Before the Bell readers will recall that the London Metal Exchange momentarily halted nickel trade in March due to the chaos.)

According to S&P Global, Russia accounts for 4 per cent of global copper output and nearly 7 per cent of global nickel output.

Traders were concerned that supply would run out just as the economic recovery from the pandemic began, so they began hoarding aggressively.

Prices are now moving in the opposite direction as recession worries take root.

“Once that stockpiling impulse ended, then global commodity demand started to reconnect with global growth,” Ghali said.

Here’s something new: The first look at a carefully watched economic indicator for June confirmed that economic activity is slowing as rising food and fuel prices pinch.

According to the S&P Global Purchasing Managers’ Index, which was released on Thursday, private sector output in the United States slowed “sharply” this month.

“Having enjoyed a mini-boom from consumers returning after the relaxation of pandemic restrictions, many services firms are now seeing households increasingly struggle with the rising cost of living, with producers of non-essential goods seeing a similar drop in orders,” said Chris Williamson, chief business economist at S&P Global Market Intelligence.

Companies are also becoming increasingly concerned about the prospects as the Federal Reserve aggressively raises interest rates in an attempt to keep price increases in check.

“Business confidence is now at a level which would typically herald an economic downturn, adding to the risk of recession,” Williamson said.

According to the PMI estimate for the 19 eurozone countries, growth in June fell to a 16-month low.

And China, which has been a critical driver of global economy, is still dealing with the consequences from Covid lockdowns and a real estate downturn. The country’s economy improved somewhat in May, although retail sales fell for the third month in a row.

What comes next: Growth in China is projected to speed up later this year, and copper and other base metals prices should return at that point, according to Darwei Kung, portfolio manager for commodities at DWS. It’s simply a matter of time before it happens.

“They are coming back, it’s just a matter of timing,” Kung said.

Meanwhile, as economic concern remains, prices may fall more.

“Over the medium term, copper prices do have more room to fall, especially as we stare down the barrel of a recession,” Ghali said.

The US Food and Drug Administration has ordered Juul to remove its products from shop shelves, and Altria is paying the price.

The most recent: The FDA announced on Thursday that Juul will no longer be able to sell or distribute vaping devices and pods, citing a lack of “adequate evidence” that doing so would protect public health.

The announcement comes after a years-long examination into whether the brand contributed to the popularity of vaping among young users.

Juul is thinking about filing an appeal. If it pursues that option, its products may be able to remain on the market while the legal process unfolds.

“We respectfully disagree with the FDA’s findings and decision and continue to believe we have provided sufficient information and data based on high-quality research to address all issues raised by the agency,” Joe Murillo, the company’s chief regulatory officer, said in a statement.

However, investors are already fleeing. When the Wall Street Journal first reported the FDA decision on Wednesday, shares of Altria, which holds a 35% stake in Juul, dropped more than 9%. On Thursday, they improved marginally.

In 2018, Altria spent $12.8 billion to acquire a stake in Juul. Concerns about the risks of vaping grew swiftly, and US regulators pushed for a crackdown on e-cigarettes.

Juul was also chastised for offering vape pods with tastes like mango, crème, and cucumber, which grew popular among teenagers.

The firm discontinued sales of its flavoured goods in the United States in 2019, just before the FDA prohibited all vaping tastes save tobacco and menthol at the start of 2020. But the harm had already been done.

Germany is concerned that Russia is restricting access to natural gas. It’s so concerned that it’s referencing the 2008 financial crisis.

Economy Minister Robert Habeck cautioned on Thursday that sustaining energy businesses “despite the enormous additional costs” was critical to avoiding a market breakdown.

If companies begin to crack under the burden of rising pricing, “the entire market is in danger of collapsing at some point,” according to Habeck. “There has been a Lehman Brothers effect on the energy system.”

As Russia turns off the taps, Europe’s largest economy is developing a contingency plan to protect supplies. Last week, Russia’s state gas company Gazprom cut flows through the Nord Stream 1 pipeline to Germany by 60%, blaming the move on the West’s decision to withhold turbines due to sanctions.

With the declaration of a national gas “alert” on Thursday, Germany moved one step closer to restricting supply to businesses, a move that would be devastating to the country’s manufacturing sector.

“Gas is from now on in short supply in Germany,” Habeck told reporters at a press conference in Berlin. “Even if you don’t feel it yet, we are in a gas crisis.”

(Adapted from ABC17news.com)

Categories: Economy & Finance, Geopolitics, Regulations & Legal, Strategy, Sustainability

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