Copper Dips Below $5,000 for First Time Since Financial Crisis
Published by
ScrapPrices
Published on August 19,2015 09:36 AM Metal Exchange
Fear of falling demand in China weighs on the metal
Copper Dips Below $5,000 for First Time Since Financial Crisis

Copper futures fell below $5,000 a metric ton for the first time since the financial crisis, dropping under a key level in a market that has been hit hard by concerns over the Chinese economy and by uncertainty for a metal widely regarded as a barometer of global economic health.

Copper’s decline comes as all metal prices continue their steep falls from the boom peaks of 2011. As with other base metals, copper has suffered from the oversupply that followed the boom and from concern over future demand from China, which consumes about 45% of the metal.

While many analysts say faltering Chinese demand will continue to lead copper lower, others predict prices will rise by the fourth quarter because Chinese buying will pick up when global supply begins to fall.

“Psychologically, $5,000 is a big, big number,” said Stephen Briggs, a BNP Paribas metals analyst. “If it actually…stays below $5,000, then it’s sort of a point for further losses.”

The London Metal Exchange’s three-month copper contract fell 2.6% to $5,035 a metric ton. The contract had slipped below the psychologically important $5,000 level in London’s afternoon trading to hit a six-year low of $4,983 a ton.

In New York, the most actively traded contract, for September delivery, settled 1.5% lower at $2.2870 a pound on the Comex division of the New York Mercantile Exchange, a fresh six-year low.

Tuesday’s decline comes amid a selloff on the Chinese stock market, which ended Tuesday down 6.1%. Commodities were also hit after the Chinese central bank last week devalued the yuan, making dollar-denominated metals and oil more expensive for the world’s second-biggest economy.

The price of copper has now halved since its 2011 peak and is at levels not seen since 2009. Copper prices sank below $3,000 a ton in 2008 before climbing to a high of $10,190 in 2011.

Many analysts believe copper still has farther to fall, given the current fears for demand in China. A slowdown in Chinese manufacturing and construction would significantly reduce demand for copper, which is used mainly for wiring, pipes and roofing.

“We can easily see a 10% fall from current levels,” said Atul Lele, chief investment officer at Deltec International Group, with $2 billion under management.

The souring outlook on Chinese demand has led to bets on weaker copper prices. Speculative investors in copper futures and options have been net-bearish for 10 consecutive weeks, according to data released on Friday by the Commodity Futures Trading Commission. More recently, the number of open futures contracts has climbed to a record even as prices plumbed six-year lows, a sign that bearish traders are piling into the market.

“China’s economy is worse than thought…you have people scared,” said Ira Epstein, a broker with Linn & Associates in Chicago.

Investors also believe an expected rise in U.S. interest rates will spur further gains in the dollar, making commodities even more expensive.

The plunge in copper prices has sent the shares in some of the world’s largest mining companies tumbling while hurting economies from Chile to Zambia. Chile produces over 30% of the world’s supply of copper, which was responsible for almost 10% of the Latin American country’s gross domestic product in 2013, according to data provider CEIC.

Shares of U.S. mining company Freeport-McMoRan Inc. have fallen 58% this year, while Toronto-based Barrick Gold Corp. has written off around $4 billion from the value of a copper mine that it bought in 2011.

In recent months, Mr. Lele bet that copper-mining shares would fall further by short selling the SPDR S&P Metals & Mining ETF, an exchange-traded fund that tracks a basket of 30 mining stocks.

Still, some analysts argue that copper’s steep declines will have ended by the fourth quarter and that, even amid the current price drops, positive signs have emerged in recent days.

Stocks of copper on the Shanghai Futures Exchange have nearly halved since April to 121,258 metric tons, according to data from Capital Economics.

Low copper prices will stimulate restocking demand by manufacturers in China and, possibly, China’s State Reserve Bureau, said Helen Lau, an analyst with Argonaut.

The bureau, which maintains stocks of such metals as copper and iron as strategic materials, has been one of the biggest buyers of copper whenever prices have fallen significantly.

Meanwhile, China’s July copper imports rose by 2% from a year earlier and 0.2% from a month earlier to 350,000 tons, according to data from Citi Research.

“We will see a stronger copper price going forward over the next three to five years, because fundamentals would dictate that actually we’re moving into a bigger deficit market,” said Clive Burstow, a fund manager at Baring Asset Management, which has £25.2 billion ($39.3 billion) in assets under management. “It’s just when that deficit arrives... That’s the question.”

Courtesy : www.wsj.com

MORE METAL EXCHANGE NEWS
November 09,2023 08:00 AM
The London Metal Exchange will require LME-registered warehouses to report the amount of all LME-branded metal they store, even material that is not registered for delivery in connection with futures contracts, it said in a statement on Thursday.
August 16,2022 08:00 AM
The London Metal Exchange on Tuesday banned Russian nickel from its approved warehouses in Britain unless it was exported before July 20.
May 06,2022 08:00 AM
CME Group is talking to market participants about the idea of a cash-settled nickel contract for companies to hedge costs of the electric vehicle battery raw material, two sources with knowledge of the matter said.