Aluminum price drives metals lower as China lockdowns threaten economy

Cities and regions across China are imposing activity restrictions, with the country reporting more than 5,000 new Covid-19 infections for the first time since the early days of the pandemic.

Morgan Stanley cut its forecast for Chinese economic growth to zero this quarter, as Shanghai closed construction sites. Sustained restrictions on movement and manufacturing would present a significant headwind for demand for metals due to China’s high proportion of global consumption.

The cooling in metals markets contrasts with strong gains earlier this month, when copper and aluminum hit new highs. Traders were worried about the disruption of supplies from Russia due to sanctions imposed after its invasion of Ukraine. Weak foreign exchange stocks have exacerbated these fears.

Base metals “have generally been hit by a double whammy from the China lockdown and general war premium deflation,” said Ole Hansen, head of commodities strategy at Saxo Bank A/S. “All of this helps offset Russia’s ongoing supply issues.”

The European Union has excluded aluminium, copper and nickel from its latest round of trade restrictions against Russia. The sanctions mainly targeted imports of finished steel products.

Aluminum fell 1.8% to 3,261.50 a tonne on the LME at 10:05 a.m. local time. Copper fell 0.7%.

Xiang Guangda, whose large short position rocked the nickel market last week, got a OK with its banks to avoid further margin calls, reducing the risk of the tightening repeating itself when trading resumes on the LME.

Benchmark iron ore prices in Singapore fell for a sixth day.

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