Metals meltdown: Fears of a global slowdown see prices tumbling

Prices of metals are falling fast on rising fears of a recession in the world’s top industrial economies, especially the United States, as central bankers tighten monetary policy to fight inflation. The Bloomberg Commodity Index has trended down from levels of 134.9 on April 18 to 121 late last week, a correction of about 10%.

Last Friday the IMF slashed its growth outlook for the US but said the country would ‘narrowly” miss a recession. Fears of a weak property market in China have dampened the demand outlook for metals in that market; prices of aluminium on the London Metal Exchange (LME) are down 36% in the past two months. Prices of steel (HRcoils) are ruling at around $1,120 per tonne, down from $1,540 /tonne in early April, while zinc is trading at levels of $3,485/ tonne compared with $4,563/ tonne in mid-April.

Bloomberg reported on June 23 that copper, an economic bellwether due to its use across sectors, as also other metals have slumped this month on the prospect of weaker demand following a global economic slowdown. Copper has dropped more than 20% from its high in March and is trading at a 16-month low. Last Thursday, copper futures on the LME slid as much as 5% to $8,338 a tonne, the lowest since February 2021, while tin dropped more than 11% before paring losses, Bloomberg correspondents wrote.

While prices recovered slightly thereafter, commodity experts believe there is room for a downslide and forecast another 20% fall.

The correction in global prices of metals has impacted stocks of metals producers back home.

From its recent peak of 6,755.55 on April 8, the Nifty Metals Index fell to 4,490.75 on June 22, recovering slightly to 4,596.6 on June 24. That’s a steep drop of over 30%.

With prices of aluminium having come down sharply, analysts have pruned FY23 Ebitda estimates for makers of aluminium anywhere between 3-18%. They have said producers would be hit not just by lower realisations, but also the higher cost of coal.

Analysts at Nomura wrote earlier this month that since the imposition of export duty on steel on May 22, prices of hot rolled coils have already fallen by roughly Rs 8,000/ tonne, compared with their estimate of a maximum decline of Rs 9,800/ tonne. Hot rolled coil prices are ruling at around Rs 61,400/tonne. “End-user industries for steel, both in domestic and in export markets, remain on the side-lines amid weak economic demand and expectation of further decline in steel prices,” they observed.