Non-Ferrous Metals Hit Yearly Low "Not the Bottom"

Non-Ferrous Metals Hit Yearly Low "Not the Bottom"
Non-Ferrous Metals Index Down 24% in Three Months
Copper Price Falls 12% This Month Alone
Reflecting Economic Recession and Slowing Chinese Demand

Non-Ferrous Metals ETFs Record Over 20% Loss in One Month

"Caution Against Premature Bottom Buying
Energy More Promising Than Non-Ferrous Metals"

[Asia Economy Reporter Minji Lee] As concerns over a global economic recession intensify, prices of non-ferrous metals, which are closely linked to economic trends, have fallen to their lowest levels this year again. Experts say that with the increasing pressure of economic slowdown due to the strengthening of the US tightening stance, a conservative approach should be taken toward investing in non-ferrous metals.

◆-12% in One Month, Copper Doctor’s Signal of Economic Slowdown

According to the London Metal Exchange (LME) on the 30th, the non-ferrous metals index (LMEX), which indexes futures prices of six non-ferrous metals centered on aluminum, copper, and zinc (lead, nickel, tin), plunged more than 24% from 5209.60 on April 1 to 3955.30 on the 28th over three months. On the 24th, it dropped to 3,918.90, the lowest level this year.

Specifically, copper prices, known as the “Doctor Copper” and used as an economic trend indicator, showed a sharp decline this month. The LME spot copper price fell about 12% from $9,498.98 per ton at the beginning of the month to $8,399.25. Copper prices had remained above $10,000 since the second half of last year due to expectations of economic expansion but soon dropped to around $8,000. Zinc spot prices also fell more than 12% during the same period.

Non-ferrous metal prices have shown a significant decline since the second quarter. Several complex factors contributed to the drop. Until last month, concerns about weakening demand for non-ferrous metals due to China’s zero-COVID policy increased, while the US interest rate hikes boosted the dollar’s value. Non-ferrous metals typically move inversely to the dollar. When the dollar strengthens, the denominator value increases, causing raw material prices to fall.

Moreover, the biggest obstacle has been growing concerns about a “recession.” If the economy deteriorates rapidly, manufacturing activity slows down, inevitably reducing demand for non-ferrous metals further. Some analysts argue that we have already entered stagflation, where inflation remains high while the economy rapidly worsens. A report published within the US Federal Reserve (Fed) estimates that the probability of a recession within one year exceeds 50%, and the likelihood within two years surpasses 60%.

◆Non-ferrous Metal Leverage ETPs Plunge 22%... When Will the Bottom Signal Appear?

As non-ferrous metal prices weaken, investors in related ETP (ETF, ETN) products are also experiencing significant losses. The ‘KODEX Copper Futures’ ETF fell 14% in one month. The ‘Shinhan Leverage Copper Futures ETN,’ which seeks twice the return of copper futures, recorded a -22% loss, and the ‘Daishin 2X Zinc Futures ETN’ also posted a -25% loss. Conversely, investors who bet on the decline of non-ferrous metal prices by purchasing the ‘Shinhan Inverse Copper Futures ETN’ and ‘Daishin Inverse Nickel Futures ETN’ earned profits of around 14% and 17%, respectively.

Experts say that although non-ferrous metal prices have rapidly declined this month, it is not the time to recklessly buy at the bottom. They believe that as economic slowdown indicators emerge one by one, the downward pressure on prices could intensify. The finalized US first-quarter GDP was revised downward to -1.6%, reflecting a downward revision in personal consumption demand. Soobin Shim, a researcher at Kiwoom Securities, analyzed, “Considering the consensus that major countries’ economic indicators will be released weaker than the previous month, commodity prices may face renewed downward pressure based on economic concerns.”

Researcher Kyuyun Jeon of Hana Financial Investment said, “The upward momentum of non-ferrous metals should be considered broken,” adding, “Given the psychological direction toward economic slowdown, prices are more likely to continue falling rather than rising.” He further advised, “It is difficult to predict the timing of a rebound, so investments related to energy and agricultural products may be more promising than non-ferrous metals.”

This content was produced with the assistance of AI translation services.