BackCopper tumbles most in six years amid commodity price collapse
Lower energy costs and demand weakness amid worse-than-expected economic data in China are driving prices down
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Hong Kong/Singapore: Copper tumbled the most in almost six years as it followed other metals lower amid a collapse in commodities.
Lower energy costs and demand weakness amid worse-than-expected economic data in China are driving prices down, according to Goldman Sachs Group Inc. Consumption in the world’s biggest user will grow at the slowest pace since at least 2009, Deutsche Bank AG estimates. Prices slumped as much as 8.6% in London on Wednesday and fell by the daily limit in Shanghai.
Commodities have sunk to the lowest level in more than 12 years, led by a rout in energy prices, after a decade-long bull market led producers to boost output and a stronger dollar diminished their allure to investors.
Oil’s 60% decline since last year’s peak is cutting costs for mining companies and bolstering speculation the glut will worsen. Copper is the worst performing non-energy raw material this year on the Bloomberg Commodity Index, which fell to the lowest since August 2002.
“People have seen oil prices decline so much and now they’re targeting other commodities," Ivan Szpakowski, an analyst at Citigroup Inc. in Hong Kong, said in an interview with Bloomberg TV on Wednesday. Copper is falling faster than most other commodities because “it’s the one that is played by the macro investors and by people who are looking at the broader picture rather than commodity fundamentals."
Copper for delivery in three months on the London Metal Exchange dropped as much as $506.75 a metric tonne to $5,353.25, the lowest since July 2009. The metal was trading 5.2% lower at $5,555.25 a ton by 12:49pm in London.
Cutting losses
Demand growth in China will slow to 4% in 2015 from 5.5% last year, according to estimates by CRU Group, a research company. Between 2002 and 2012 it averaged more than 10%. Economists surveyed by Bloomberg forecast the country’s economy to grow 7% in 2015, the slowest pace since 1990.
“People are concerned about the demand growth in China," Chunlan Li, a Beijing-based copper analyst at CRU, said on Wednesday by phone. “We have seen sharp declines in oil prices and the macro-economic picture doesn’t look good."
The world economy will expand 3% in 2015, according to a World Bank report, down from a projection of 3.4% in June. The Washington-based lender cut its forecast for China, saying the world’s second-biggest economy is undergoing a “managed slowdown."
China’s consumption is likely to remain weak with visible inventories rising in the first half of the year, Goldman Sachs analysts including Max Layton wrote in a report dated 13 January. That will continue to weigh on prices, according to the bank, which said risks to its 12-month forecast of $6,000 a tonne were “still heavily skewed to the downside."
Copper inventories
Inventories of the metal monitored by major exchanges in London, New York and Shanghai have climbed 5.4% since the start of the year and are up 32% since June, when they dropped to the lowest in more than five years, according to data compiled by Bloomberg.
In New York, March futures fell 5% to $2.513 a pound. The volume of all contracts traded on the exchange was almost 300% higher than the average for this time day. Contracts on the Shanghai Futures Exchange dropped 4% to 41,190 yuan ($6,647) a tonne, hitting the bourse’s daily trading limit.
“There was some loss-cut trading that came into the market," said Tetsu Emori, a senior fund manager at Astmax Asset Management Inc. in Tokyo. “The psychological factor is now the main driver. People have been looking at the increase in LME stocks as well."
Crude slump
London-traded Brent crude slid to the weakest since March 2009 on Tuesday and lost 0.1% to $46.53 a barrel on the ICE Futures Europe exchange on Wednesday. The rout will help cut costs to produce and transport metals, according to Natixis SA. Energy makes up about 25% of copper mining costs, CRU estimates.
Any price rebound in copper will depend on government stockpiling by China this quarter and the pace of demand growth, according to Goldman Sachs. The metal “remains challenged" by factors including a stronger US dollar and higher supply, as well as tighter credit and slower growth in China, it said.
Wednesday’s slide dragged down shares of metal producers while boosting manufacturers and utilities. Jiangxi Copper Co., China’s largest producer, dropped 5.9% in Hong Kong while BHP Billiton Ltd, the world’s biggest miner, slid to an almost six-year low in Sydney. Electricity generator Huadian Power International Corp. surged 6.5% in Hong Kong.
Refined production will exceed demand this year by 221,000 tonnes, widening from 59,000 tonnes in 2014, Gayle Berry, an analyst at Jefferies Bache Ltd, said in a 7 January report. About 1.6 million tonnes of new mine supply of the metal may come online in 2015, Bloomberg Intelligence said last month.
Investors last week doubled bets on more losses in copper, already the worst-performing industrial metal in the past year after plunging 24%. Investors increased the net-short position in copper to 10,881 Comex contracts in the week ended 6 January, compared with 4,455 a week earlier, according to Commodity Futures Trading Commission data. Bloomberg
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