Copper prices dropped by roughly a third in March 2022. Copper is used in many devices including air conditioners, computer chips, toasters, and power systems. Investors are selling their holdings because they fear that a global economic slump will reduce the demand for a metal linked with expansion and growth.
Observing the market right now, one would not be able to comprehend it, but some of the major miners and metal dealers are warning that there will be a severe shortage of the crucial metal globally over the next few years. This scarcity could hamper efforts to achieve global climate targets, slow down global economic growth, and contribute to an increase in the prices of goods. The warning comes despite an increase in copper production in 2022 over that in 2021, according to GlobalData.
The current recession and the resulting underinvestment have the potential to worsen the situation. Before rising 6.6% to close, benchmark futures prices fell to their lowest level since late July 2022. The governments in Europe are spending billions of euros to maintain a steady supply, and Germany, Europe's economic powerhouse, is moving closer to nationalizing gas giant Uniper SE in a historic bailout. The country is also creating new credit lines for fuel purchases, and this weekend, Chancellor Olaf Scholz will travel to the Middle East to look for new commercial prospects.
These measures complement the efforts made by the European Union to stop the crisis that put the local economy in danger of recession. Separately, according to persons familiar with the situation, the UK intends to reduce the wholesale costs that are included in commercial energy bills this winter. Besides, there is also a plan to limit household expenses for two years.
Gas stockpiles in Europe have been steadily filling to roughly 86%, which is somewhat higher than the five-year average. This, along with significant imports of liquefied natural gas, led to a decrease in prices from their August high. However, the possibility of future disruption in supply from Russia continues, particularly along the last significant route through Ukraine. A particularly chilly winter could also cause the market to tighten significantly, depleting supplies at the end of the colder season.
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