Most base metals edged lower on signs the global growth outlook is worsening and as accelerating inflation will lead to tighter monetary policy.

Investors are bracing for a slower but still robust economic recovery from the pandemic and gradual monetary-policy tightening, as inflation concerns take hold. Climbing raw-material prices are feeding into worries about rising costs, with a Bloomberg gauge of commodities including energy, metals and crops soaring to an all-time high this week. The dollar held gains, while the breakeven inflation rate on 10-year U.S. Treasuries topped 4 per cent for the first time since 2008.  

Worries over the demand outlook have so far centered largely on China, where manufacturers are facing a power crunch, but signs of a slowdown are emerging in Europe too. Germany’s factory orders slumped 7.7 per cent in August, in the third-biggest drop in the past 30 years, official data showed. Meanwhile, surging gas prices continue to heap pressure on industrial firms throughout Europe, with futures surging a further 40 per cent to fresh all-time highs on Wednesday.

“Europe has been the surprise out-performer for most of the year, but with energy prices rising we are seeing growing pressure on industrial consumers,” Colin Hamilton, managing director for commodities research at BMO Capital Markets, said by phone from London. “Europe is also obviously at the sharp end of the global logistical bottlenecks as well.”

Still, demand concerns are likely to be partially offset by supply constraints for some raw materials in China due to the power crunch. Limited power availability has “restricted production of both aluminum and steel,” Citigroup Inc. analysts wrote in a note. They saw “only ‘normal’ drawdowns required for a tight aluminum market,” while steel inventories have already been falling over the past eight weeks, the bank said.

Copper dropped 1.7 per cent to US$9,015 a metric ton on the London Metal Exchange at 10:46 a.m. London time. Nickel slid 0.2 per cent and aluminum fell 1.2 per cent, while tin climbed 0.3 per cent. Chinese markets are closed through Thursday for the National Day holiday break.

In ferrous markets, iron ore futures in Singapore were little changed at US$116.75 a ton amid thin trading. Prices of the steel-making raw material have almost halved since peaking in May and are expected to decline further on limited steel volumes and rising supply.