Analysis – Global metal volumes fall on recession fears and volatile markets

Analysis – Global metal volumes fall on recession fears and volatile markets


By Eric Onstad and May Nguyen

LONDON/HANOI (Reuters) – Volumes of industrial metals have fallen worldwide and may fall further as economic threats from rising interest rates from the war in Ukraine push buyers, especially in key consumer China, to the sidelines.

Strict interest rate increases have raised real concerns about an impending recession, while confidence also continues to falter after extreme price swings during the first quarter after the Russian invasion of Ukraine.

Volumes have fallen by as much as a third on global commodity exchanges so far this year, as have volumes in most other industrial metals, with nickel being the hardest hit.

Weak appetite for industrial minerals is an ominous sign for the global economy, with “Doctor Cooper” – nicknamed for its wide use in industrial processes from construction to energy and manufacturing – seen as a leading indicator.

While the relationship is complicated by other factors such as exchange fees and margins, comparing copper volumes with both global growth and manufacturing shows correlations that analysts have estimated at 60%-80%.

“It is clear that stagnation risk may play a role in participants looking to reduce their exposure to the metal,” said independent consultant Robin Bahar.

Graph: Global GDP and Dr. Cooper –

Graphic: Global Manufacturing PMI and Dr. Cooper –

The hardest hit China

Exchanges in China, the world’s largest producer and consumer of commodities, have seen some of the biggest erosion in activity, with copper volumes on the Shanghai Futures Exchange (ShFE) down 33% so far this year through August.

In addition to the economic recession and the real estate crisis, the Chinese government has taken a tough stance on COVID-19 infections, imposing severe lockdowns in the country’s commercial hub in Shanghai.

READ ALSO :   Fuel export limits will only exacerbate global supply shortages, Exxon CEO tells DoE - DJ

Tiger Shi, managing director of BANDS Financial in Hong Kong, said people were reluctant to make big business decisions during the lockdowns. He added that “the lack of face-to-face interaction hindered the company’s employees from developing trading strategies.”

“(Another factor) is the slowing economy. Everyone is taking a more conservative approach.”

Traders said some of the copper trading in China has shifted to a new international copper contract on the Shanghai International Energy Exchange (INE), but that this is only a small part of the decline in ShFE.

INE volumes are up 819,288 tons so far this year, but ShFE activity is down 74.4 million tons.

Chart: Twice the volumes of copper on global exchanges –

Money stays on the sidelines

Funds and speculators favor the US comics market, but their caution has seen average daily volumes of copper slide 21% in the first eight months of the year.

โ€œMacro refers to selling or shorting, but you would be very cautious because of the short marketโ€™s ability to come back,โ€ Bahar said. “You might lose your shirt.”

Many investors are optimistic about copper in the long term due to the expected increased demand for electric vehicles and renewable energy, but they are holding back in the short term, said Tom Nelson, portfolio manager at investment manager Ninety One.

โ€œCopper is supplied very well in the very near term, so you can be very bullish copper for the energy transition, but hold back for a year or two because of near-term supply trends.โ€

LME Physical Works Polyester

Trading volumes also fell on the London Metal Exchange, the world’s oldest and largest market for industrial metals, but in most cases it outperformed its competitors in the United States and China.

READ ALSO :   Here's what to expect from the third-quarter earnings season according to Goldman Sachs

The status of the London Metal Exchange was maintained despite a sharp rise in nickel prices in March that forced the exchange to suspend activity and cancel billions of dollars of trade, angering many investors and triggering lawsuits.

With confidence undermining, nickel activity has been hit the hardest, with LME volumes down 17% so far this year, although this is still lower than the ShFE index, which is down 70%.

The significant decline is due to the fact that the Shanghai contract has not established itself as a global benchmark, and there has been a lack of arbitrage opportunities since the LME contract has not been open during key Asian trading times since the March crisis.

LME data shows that many participants have abandoned the nickel market, a trend that many traders say appears to continue, leading to lower volumes and greater volatility as more people choose to negotiate prices directly.

Chart: Nickel volumes hit hard after the March crisis –

Copper volumes on the 145-year-old London Metal Exchange (LME) are down just 6% since the start of the year, and they are holding out better than ShFE and Comex because the core of their business relies on physical inflows including from miners and industrial users, Mark Bailey said , CEO of broker Sucden Financial in London.

He said: “The London Metal Exchange is largely supported by traditional trade flows. These flows will be there, even if they are less because economic activity will be less.”

The Latest

To Top