Copper Posts Biggest Loss Since 2008 on Mounting Recession Risk

(Bloomberg) -- Copper had the biggest one-day loss since 2008 on fears that huge stimulus programs unveiled by governments worldwide this week may not be enough to stave off a recession.

The metal in London fell below $5,000 for the first time in more than three years before settling 7.8% lower Wednesday. The slump is rattling investors who look to the commodity as a barometer of the global economy.

Pressure on the metal is building, even as governments roll out stimulus packages to limit the impact of the coronavirus pandemic. Group of Seven leaders have pledged to do whatever is necessary to ensure a coordinated response, while the planned U.S. effort could amount to $1.2 trillion.

“Global markets are facing huge volatility, with the realistic threat of recession around the corner, despite actions taken by governments all but throwing in the kitchen sink in order to support their economies,” Natalie Scott-Gray, an analyst at INTL FCStone, said in an emailed note.

As factories across Europe shut down, a new reality is dawning: China, which consumes half the world’s copper, may not be able to rescue the market on its own.

“China is definitely stimulating, and that’s been supportive for copper in particular, but that’s only affecting domestic demand,” Michael Widmer, head of metals research at Bank of America Merrill Lynch, said by phone from London. “When you look at Chinese exports and the world outside China, they’re both doing very poorly.”

There are hopes that early signs of recovery may come soon as the number of new Covid-19 cases in the country recedes and activity in resource-intensive industries starts to rebound.

“Despite serious concerns a month ago, metal business in Asia has returned to somewhat normal levels, and this may in the short term offset some demand loss elsewhere,” said Mark Hansen, chief executive officer at Concord Resources Ltd. “The short-term demand shock and loss of industrial production in many places is unprecedented, but not yet unmanageable.”

But the cumulative impact of demand losses in other major economies is likely to dampen the potency of any China-led rebound. A rallying dollar is adding to copper’s woes, by making commodities priced in the currency more expensive for buyers outside the U.S.

Copper declined as much as 8.2% to $4.720 a metric ton before settling at $4,745 at 5:51 p.m. in London.

Bank of America has warned that if global GDP growth slows to 1.5% this year, in line with the OECD’s bear-case scenario, an average copper price of $4,424 would be justified, given historical correlations.

“I think we are increasingly transitioning toward the OECD bear case, and I think copper will go down further,” Widmer said. “There’s a real risk.”

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