(Bloomberg) — Prices for two of the world’s most important mined commodities are diverging quickly, with copper rallying above $9,000 a ton as supply cuts roil the market and iron ore sinking as demand headwinds mount.
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Copper has surged 5% this week, ending of a months-long spell of inertia, as investors hone in on risks to supply at mines and smelters. Tentatively, traders are also warming to the idea that the worst of a global downturn is past, particularly for metals like copper that are finding growing usage in electric vehicles and renewables.
But signs of the headwinds in traditional industrial sectors are still plain to see in the iron ore market, where futures fell below $100 a ton for the first time in seven months on Friday. Investors are betting that China’s years-long property crisis will run through 2024, keeping a lid on demand.
The steelmaking ingredient has shed more than 30% since early January as hopes of a meaningful revival in construction activity faded. Loss-making steel mills are buying less ore, and stockpiles are piling up at Chinese ports.
Sentiment has soured since the recent National People’s Congress in Beijing, where policymakers set an ambitious 5% goal for economic growth, but offered few new measures that would boost infrastructure or other construction-intensive sectors. The latest drop will embolden those who believe that the effects of President Xi Jinping’s property crackdown still have significant room to run, and that last year’s rally in iron ore may have been a false dawn.
In copper, the hope is that headwinds in traditional industrial areas will be offset by an ongoing surge in usage in electric vehicles and renewables.
Industrial conditions in Europe and the US still look soft, but there’s growing optimism about usage in India, where rising investment has helped fuel blowout growth rates of more than 8% — making it the fastest-growing major economy.
For now, the main catalyst fueling copper’s rally is an unexpected tightening in global mine supplies. That’s been driven mainly by last year’s closure of a giant mine in Panama, but there are also growing worries about output in Zambia, which is facing an El Niño-induced power crisis.
Prices spiked on huge volumes on Wednesday after smelters in China held a crisis meeting on how to cope with a sharp drop in processing fees following disruptions to supplies of mined ore. The group stopped short of coordinated production cuts, but pledged to re-arrange maintenance work, reduce runs and delay the startup of new projects.
Copper jumped as much as 2% to $9,066.50 a ton on the London Metal Exchange on Friday, and was trading at $9,018.50 a ton as of 8:56 a.m. local time. Most metals were higher on the exchange.
Iron ore futures in Singapore were down 3.6% at $99.55 a ton, after falling as much as 4.5% earlier.
–With assistance from Atul Prakash.
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