Pelosi’s visit to Taiwan shakes global copper markets, but slowing growth in China remains the biggest concern

Copper prices fell for a fourth consecutive day on Thursday as tensions between the United States and China flared as House Speaker Nancy Pelosi wrapped up her visit to Taiwan, an island China claims as its own territory.

China is one of the world’s largest consumers of metals. While rising geopolitical tensions appear to be an unlikely catalyst for further copper liquidation, investors in base metals used in construction projects still fear that slowing global economic growth will dampen demand.

“Its recent drop has added to broader concerns about a possible global recession,” Boris Ivanov, a global commodities expert and founder of Emiral Resources, said on Wednesday. “Lackluster economic growth in Europe, the US and China and a deteriorating macroeconomic backdrop will reduce demand for metals such as copper, and their performance in the market will depend on how rates rise and fiscal stimulus measures play out” .

Three-month copper on the London Metal Exchange fell 3% to $7,677.50 a tonne on Thursday, posting a fourth straight day of losses, according to Dow Jones Market Data. While on the New York Mercantile Exchange, copper contracts for delivery in September HGU22,
+0.66%
it lost 4 cents, or 1.1%, to trade at $3.43 a pound. In Asia, the most traded September copper contract fell 2.2% to settle at $8,701.13 a tonne.

Speaker of the US House of Representatives Nancy Pelosi arrived in Taiwan on Tuesday on one trip he said it “honors America’s unwavering commitment to support Taiwan’s vibrant democracy,” but he also did not contradict China’s claims about the self-governing island. Pelosi was the highest-ranking US politician in 25 years to visit the island.

The visit, in defiance of Beijing and despite warnings from Biden, led China to announce a series of military operations around the Taiwan Strait, raising tensions between Washington and Beijing.

Read more: Why China-Taiwan tensions came to the forefront of financial market concerns

Commodity prices, in particular metals, have fallen sharply as demand has slackened due to weak consumption in the main market, China, but also due to the impact of tightening monetary policies around the world to combat the rising inflation, according to Ivanov of Emiral Resources.

The Federal Reserve raised its benchmark interest rate by another 75 basis points a week ago on Wednesday in an effort to rein in inflation. Fed Chairman Powell tried to reassure Americans that the US is probably not in a recession right now, even though second-quarter GDP data, released a day later, showed the economy it contracted 0.9% annualized in the three quarters. April-June period, intensifying fears that the economy may already have entered a recession.

copper in july fell to its weakest level in 20 months as fears of a global recession and disappointing Chinese GDP and trade data continued to weigh on investor sentiment. China is one of the largest consumers and importers of refined copper and relies heavily on copper resources to meet its demand for construction and production of electric vehicles.

China factory activity unexpectedly contracted in July after recovering from COVID-19 lockdowns the previous month, a survey by the Office for National Statistics showed on Sunday. The official manufacturing purchasing managers’ index fell to 49 from 50.2 in June, falling below the 50-point benchmark that indicates contraction.

Another data showed that the sales of the 100 main real estate developers in the country it fell 39.7% year-over-year in July, while sales fell 28.6% from the previous month.

“For the past two decades, China’s infrastructure boost has been driving demand for commodities, especially metals like steel and copper. China imported more than 373,000 tons of refined copper in June, its highest monthly figure this year,” Ivanov explained. “However, its economy has been hit by its zero COVID policy and subsequent series of lockdowns in major manufacturing hubs and urban centers and problems in its debt-ridden real estate market. The sector, a key source of demand for metals, remains sensitive.

MarketWatch reported last week that China’s housing crisis will cause a more severe recession in base metal prices during the second half of the year as COVID-19 lockdowns have severely disrupted property construction while many homebuilders are still stuck in a crippling debt crisis.

In the meantime, precious metals futures were mixed. Gold futures due December GC00,
+1.90%

GCZ22,
+1.90%
it jumped $15, or 0.9%, to trade at $1,791.60 an ounce on Thursday. Silver for delivery in September SIU22,
+1.54%
it fell 5 cents, or 0.3%, to $19.96 an ounce, according to Dow Jones Market Data.

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