Copper rally as supply disruptions mount
Copper futures in London and New York showed their first weekly advance in six weeks as US recession fears eased and strike action at BHP’s Escondida mine in Chile, the world’s largest, shifted the focus from weak demand to supply disruptions. Additionally, exchange-monitored warehouse stocks saw their first, albeit small, weekly drop since May. These developments spurred fresh demand from momentum-chasing funds, who had recently cut their net long exposure in the High Grade futures contract by 91% to a five-month low.
The Escondida mine accounts for nearly 5% of the world’s mined copper output, and a prolonged closure due to strike action could further tighten the concentrate market. Several other mines in Chile have yet to finalize wage discussions, and combined with the positive long-term outlook for copper demand, these factors suggest an end to the recent deep correction.
Iron ore challenged by slump in China steel output.
The near 3% rally in copper helped drive the industrial metal sector to the top of the table together with precious metals with silver seeing some relative strength to gold. Other metals, such as steel, fared worse, leading to a nearly 9% drop in iron ore futures to levels not seen since 2022. Crude steel production in China is showing a year-on-year decline as the property sector crisis continues to sap demand. This led to a warning from China Baowu Steel Group—the world’s largest producer—that current conditions are worse than the downturns in 2008 and 2015.
Resilient gold bulls have their sight on USD 2500
Gold, meanwhile, continues to gain, with investors showing limited selling appetite despite fluctuating US rate cut expectations. Gold’s resilience highlights its appeal as a hedge against turmoil, supported by factors beyond just the timing and extent of US rate cuts. The yellow metal is heading for a weekly gain despite strong US economic data, which has eased fears that the Federal Reserve has fallen behind the curve and would need to cut rates aggressively to catch up. Gold faces resistance in the USD 2475 to 2480 area, while support is found around USD 2350 and just below USD 2300.
We maintain a positive view on gold as a diversifier and hedge against market turmoil, combined with continued demand from central banks and investors worried about elevated government debt levels. If the Federal Reserve begins cutting rates, potentially as early as next month, interest rate-sensitive investors may return to gold via ETFs, which have seen consistent net selling since 2022 when the FOMC began its aggressive rate-hiking campaign.