Copper bears keep reins at 1.5-year low as recession fears supersede China-inspired positivity

• Copper Price remains pressured around multi-month low despite market’s cautious optimism.
• Fears of economic slowdown, higher production and central banks’ aggression exert downside pressure.
• US-China dialogue favor hopes of American removal of Trump-era tariffs but expectations of no major impact on inflation tame optimism.

Copper Price stays depressed near the lowest levels since February 2021, down for the fourth consecutive day at around $3.56 while heading into Tuesday’s European session. It should be noted that the three-month copper futures on the London Metal Exchange dropped 0.50% to $7,973 whereas the most-traded August copper contract in Shanghai fell 0.6% to 60,870 yuan ($9,094.58) a tonne by the press time.

In doing so, the red metal justifies the market’s inability to cheer the expectations of the US removal of Trump-era tariffs from China. The challenge to risk-aversion could be linked to the comments from Chinese Vice Premier Liu He suggests an improvement in the US-China trade ties, at least for now, which in turn favored the market sentiment previously. “The two agreed to need to strengthen communication & coordination of macroeconomic policies between China and the US,” said the macro update conveying telephonic talks between China’s Liu He and US Treasury Secretary Janet Yellen.

Also likely to have probed the metal bears were headlines suggesting China’s readiness to put aside 500 billion yuan ($74.69 billion) to spur infrastructure spending, as well as upbeat prints of China’s Caixin Services PMI for June.

However, expectations that such an act by the US won’t be able to ease the supply chain constraints, and hence may not be effective in taming inflation, appear to have probed the risk-on mood of late.

Additionally, recession fears recently took clues from Europe as Italy declared a state of emergency amid the worst drought in 70 years. Further, Germany also flashed signals of economic hardships as energy companies struggle to pay gas prices after the Russia-Ukraine crisis.

That said, copper prices are likely to refresh the multi-month low amid fears of demand, as well as increasing supplies from Asia. However, the SMM news spots a supply crunch for copper ingredients called TC/RCs to hint at the metal’s rebound in the third quarter of 2022. “Demand for copper concentrate in Asia is likely to be supported in the third quarter by high margins and increased Chinese smelter capacity, while clean copper concentrate is expected to be in tight supply, putting downward pressure on TC/RCs charged on Chinese smelters,” said the latest SMM piece on copper.