Risk of Global Economy Recession Suppressed Copper Prices

SHANGHAI, Apr 19 (SMM) - The US ISM manufacturing index unexpectedly fell to 46.3 in March, a new low since May 2020. In particular, the employment index hit a new low since July 2020, and the new orders index also fell into a deep contraction. At the same time, the US employment data also weakened, with the number of US job vacancies falling to 9.93 million in February, far below expectations. The JOLTS data in the last two months fell 1.3 million, the second largest drop in history. The US non-farm payrolls added 236,000 jobs in in March, which were lower than the expected 239,000. The final reading of the manufacturing PMI in the eurozone stood at 47.3 in March, confirming that the manufacturing industry in the region stayed in contraction. Specifically, new orders shrank for 11 consecutive months and export orders also fell further. Gold to copper ratio increased amid expectations of global economic recession. China's CPI in March rose 0.7% year-on-year and fell 0.3% month-on-month, which was lower than expected. In January to March, China's CPI rose 1.3% over the same period of the previous year. This implied that the resident consumption was still in the process of a recovery at a moderate pace. At the end of February, the year-on-year growth rate of resident savings deposits reached 18.3%, a record high in the past ten years, which suggests that consumption will be further released. Although the recovery of consumption was slower than expected, the domestic macro environment has eased and overseas countries have high expectations for China's economic growth. In terms of fundamentals, the shortage of copper cathode eased in light of sufficient copper scrap supply and less-than-expected output cuts caused by the maintenance. In terms of inventory, the slow decline in both domestic and overseas inventory provided only slight support for copper prices.

    On the whole, the gold to copper ratio has risen amid weak economic data. This, coupled with the risk of a global economic recession and uncertain financial stability, suppressed the copper prices. On the fundamentals, weak demand weighed on the copper prices, but the consumption showed a certain degree of resilience when copper prices moved down sharply. SMM sees the most-traded SHFE copper prices between 67,500-70,000 yuan/mt in April and LME copper prices between $8,700-8,950/mt.