Copper Recovers as Dollar Weakens, Supply Concerns Deepen

Over the past couple of years, geopolitical events have led to a slowdown in the global economy, starting with COVID in late 2019 and culminating with the Russia-Ukraine war earlier this year. The pandemic significantly impacted supply chains and led to issues, including the global chip shortage, that are still affecting industries to this day, while Russia’s invasion of Ukraine contributed to soaring energy and food prices across the world.

Several other economic factors have caused the dollar to depreciate in value for the past few months, with the greenback dropping in value again after the U.S. Federal Reserve hikes interest rates by 75 basis points last week.

Coupled with supply risks, the weakening dollar contributed to an increase in copper prices last week as well. The weaker dollar made copper a little cheaper for buyers with different currencies, increasing demand for the metal while major producers flagged supply risks that offset demand concerns.

Copper on the London Metal Exchange went up by 15% to reach about $7,590 per ton while the Shanghai Future Exchange’s most popular September copper contract went up by 21% to hit $8,640.85 a ton. The rise in prices came just a day after the dollar weakened as investors anticipated the Fed’s increase interest rates by another 75 basis points. With this recent slump, the dollar has now depreciated in value for four consecutive sessions. Although the Fed’s increasingly hawkish stance is meant to forestall inflation, it has led many experts to fear that the agency may trigger recession instead.

Copper prices have also increased due to a reduction in the global copper supply. Just last week, miners Antofagasta and Vale SA cut their copper production outlook for 2022. Last week, Chinese mining company MMG Ltd 1208.HK also announced that it was suspending its 2022 copper production targets because of a long protest in its Las Bambas Peru mine that had disrupted mining operations and caused the mine’s output to drop by 60%.

Craig Lang, an analyst at CRU, said that these miners have had a hard time meeting the bottom end of their guidance ranges, offsetting some of the slowed demand growth and increasing copper prices.

Although copper prices saw a measurable rise, the prices for the metal have been on a downward spiral for the past few months, dropping by 30% since they hit a high of $10,845 per ton in March 2022.

Leading copper producers such as Southern Copper Corporation (NYSE: SCCO) will be watching market developments closely to see how their short- and medium-term projections may be impacted by this volatility.

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