Thursday was such a dreadful day for global markets (and especially for precious metals) that investors and media took little notice of base metals, which also took a tumble. Copper is now trading just above US$3.00 a pound, way down from a high of more than US$4.50 in 2011.
Jessica Fung, a commodity strategist at BMO Capital Markets, noted that a slight bounce back is possible in the short term. But she pointed out that what really matters going forward is China.
“Will the [People’s Bank of China] introduce further monetary easing against a backdrop of slowing economic growth, or contain credit growth, which could spur more headlines of an impending domestic credit crisis?” she wrote.
And of course, there is the question of what impact more monetary stimulus would actually have. China has increased fixed asset investment by an average of 26% since 2000, Ms. Fung stated, but growth rates have been dropping in recent years.
“The same could be said from a commodity perspective, where GDP growth is also not driving the same level of metal demand growth as previously,” she wrote.
“These are the longer-term issues and are likely to persist even after today’s headlines become yesterday’s news.”