Jump in interest rates threatens demand for metals

London — Industrial metal prices fell on Thursday after the US Federal Reserve hiked interest rates and weak economic data from top consumer China highlighted the deteriorating outlook for demand.

Benchmark copper on the London Metal Exchange traded down 1.4% at $9,100 a tonne in official rings, while three-month aluminium fell 2.6% to $2,524.

“Metals demand is at risk as accelerated monetary policy tightening led by developed economies threatens to hamstring economic growth and trigger a possible recession,” said Tom Mulqueen, analyst at Amalgamated Metal Trading. “Soaring inflation also threatens to curb consumer goods spending as the rising cost of living hits disposable income and confidence.”

The Fed hiked interest rates 75 basis points (bps) on Wednesday, the largest increase since 1994, to rein in soaring inflation. The US central bank expects to raise interest rates steadily for the rest of 2022.

The European Central Bank last week signalled a string of rate hikes from July, while the Bank of England raised rates 25 bps to 1.25% on Thursday.

China’s new home prices fell for the second month this year, depressed by still fragile demand as widespread Covid-19 curbs dented already weak buyer confidence.

“A China demand rebound from second-quarter Covid-19 lockdowns could offer some respite, but is vulnerable to the ongoing threat of new outbreaks and restrictions under China’s zero-Covid approach,” Mulqueen said.

Reuters