Commodities with the biggest exposure to China are starting to price in a worsening COVID-19 situation as fears of more lockdowns worsen an already soft demand outlook.
Iron ore futures in China plunged almost 11% on Monday. London-traded copper and aluminum slipped to the lowest level since early February.
The Beijing city government ordered mass testing for COVID-19, raising fears among residents that a lockdown was imminent.
Several major cities, including financial center Shanghai, remain under various restrictions as China maintains its tough COVID-control policy.
Up until this week industrial commodities were still trading with the view that Beijing would be able to contain COVID-19 outbreaks, and, furthermore, would aggressively stimulate its economy in coming months to boost growth close to the annual target of 5.5%.
But the ongoing lockdowns, with Shanghai now entering its fourth week, have eroded confidence in China’s COVID-19 policy, while also hitting physical demand for industrial metals as factories are forced to close or work under restrictions.
Iron ore is the commodity with one of the largest exposures to China, which buys about two-thirds of all seaborne volumes.
