Copper Demand Drop Affects Mining CompaniesBy Fernando Mares | Mon, 07/11/2022 - 16:28
The possible reduction in copper demand has severely impacted the mining sector. Despite being well-managed, companies’ performance in the stock market has been lacking with share gains going downwards.
Copper prices have dropped for five consecutive days. The metal’s price has reached its lowest level since 2020. During this Wednesday’s session at the London Metal Exchange (LME), copper prices dropped to US$7,670/t, which represents a 4.2 percent drop for the day and an accumulated drop of 9 percent. The perception of a possible economic recession, increasing inflation and new COVID-19-related restrictions in China, the largest copper consumer in the world, are the main factors that impacted copper prices.
Other metals have also experienced bear sessions. During the same session at LME, spot gold was sold at US$1,737/oz, a decrease of 1.6 percent. Similarly, US gold futures dropped to US$1,738, a 1.4 percent decrease. According to analysts, investors expect the Federal Reserve to aggressively increase the interest rate, which in the short run will pressure gold prices which could go down to US$1,700 by the end of 2022.
“Considering the high inflation rate, it is more likely that the Federal Reserve, and in general, all central banks, will keep increasing the interest rate. As a consequence, it is more attractive to invest in fixed income securities, particularly in the US with short-run Treasury Bonds,” said Heriberto Sandoval, Investment Advisor, Increase Kapital, to El Economista.
Mexican mining companies’ shares have also gone downwards. Grupo México, the largest copper producer in the country, saw its shares going up to US$5.9 in March 2022 only to experience a drop of 33 percent to US$3.9 per share. Silver producers Industrias Peñoles, Fresnillo and Minera Frisco experienced drops of 21.7 percent, 23.2 percent and 16.9 percent, respectively
After experiencing critical drops, copper prices stabilized after the Chinese Ministry of Finance announced it is studying a possible stimulus package, which would allow local governments to invest over US$220 billion in infrastructure. According to experts, the stimulus package could represent an unprecedented boost to investment in infrastructure that could help in recovering the metal demand.
After this announcement, copper prices recovered 5.6 percent. Nevertheless, investors are still cautious as they consider the Chinese stimulus a short-term measure. Yet, they are still worried about possible demand drops due to the energy crisis in Europe and the US economic slowdown.