Copper and iron ore prices continued retreating this week as major Wall Street banks downgraded the Chinese economy. Data by TradingView shows that iron ore has crashed to $91.95, its lowest point since November 2022, and by over 36% from its highest level this year.
Copper is also not doing well as it crashed to a low of $4.07, down by 21% from its highest level this year. Platinum, which is used to manufacture jewelry and catalytic converters has fallen by over 17% from the year-to-date high while palladium has crashed from over $2,000 in 2021 to $930 today.
Gold is the only metal that is doing well because of its role in the economy. While copper and iron ore are industrial metals, gold is a precious metal that is often seen as a hedge against inflation.
China’s demand is slowing
Iron ore and copper are important metals that are widely seen as barometers for the Chinese and the global economies.
For a long time, China has been taking as much iron ore as possible, which has helped to push prices higher. It did that by investing heavily in housing and other constructions that require substantial steel.
For example, China has built almost 160,000 kilometers of rail and thousands of kilometers of road network. It now has one of the most advanced road networks in the world.
At the same time, the country spent billions of dollars building millions of homes. It also built hundreds of cities, some of which have transformed into ghost cities.
Recently, however, the music has stopped and the country is no longer building as it used to before. Evergrande, one of the biggest homebuilders has imploded while Country Garden is in its deathbed.
Worse, actions by Beijing to revive stalled projects have largely failed as the government has earmarked about $70 billion. Analysts believe that it needs more money than that.
Therefore, China is no longer consuming as much steel and copper as it did before, leading to a big surplus, which it is now exporting to other countries.
There are concerns that the growing surplus will hurt economies. On Tuesday, the head of Japan’s Mitsubishi, told the Financial Times that it was pushing for the government to intervene to counter China. He said:
“One company can no longer win on its own. The government should support companies and step in to compete against China since the competitor is so big.”
Analysts downgrade China
Iron ore and copper price has also dropped as analysts downgraded China’s economy. Most of them believe that it will struggle to hit its 5% growth target unless Beijing and the central bank intervene.
In a report, analysts at Bank of America noted that the country will grow by 4.8% this year, down from the previous estimate of 5.0%. The analysts then expect the economy to slow to 4.5% in 2025.
Bank of America is not the only big bank that has downgraded China recently. In a note last week, analysts at UBS noted that the 5% target was getting out of reach. It downgraded its estimate from 4.9% to 4.6%. Also, it expects the growth to slow to 4% in 2025. The analysts noted:
“We expect weaker property activities to have a bigger drag on the overall economy than earlier expected, including through household consumption.”
Other high-profile analysts have also slashed their Chinese estimates. Barclays has reduced its target to 4.8% while Goldman sees the economy growing by 4.9%.
Analysts have slashed copper and iron ore estimates
At the same time, analysts have slashed their target prices for copper and iron ore. Goldman Sachs has ended its long-term bullish copper forecast by almost $5,000 because of the cooling Chinese demand. The analysts see copper averaging $10,000 next year, down from $15,000 in the previous year.
Copper’s retreat has caught many analysts off-guard. Just recently, Jeff Currie, one of the top commodity analysts noted that copper was his biggest bets. Citigroup’s analysts noted that copper was starting its second bull run.
These analysts have also slashed their iron ore price forecasts as demand wanes. For example, countries in Europe and the United States have published weak manufacturing PMI numbers recently.
The ongoing slowdown in China and falling prices have let mining companies scrambling to find alternative sources of income.
BHP Global, a leading player in the iron ore industry, placed a $45 billion bid for Anglo American, a company that has vast copper resources.
There are rumours that Rio Tinto is planning a big acquisition, likely Teck Resources, to diversify its business.
Glencore, a top copper producer, has also ruled out exiting its coal business, which it now sees as an essential part of its operations.
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