Copper Sinks to Six-Year Low as Chinese Demand Slumps

By Paul Ploumis (ScrapMonster Author)
November 10, 2015 07:20:29 AM
Copper prices skidded to a six-year low and mining shares tumbled on Monday after China's import data showed declining demand from the world's top buyer of the industrial metal.Copper Sinks to Six-Year Low as Chinese Demand Slumps
Copper prices skidded to a six-year low and mining shares tumbled on Monday after China's import data showed declining demand from the world's top buyer of the industrial metal.

China's imports of copper and copper products for the first 10 months of 2015 fell 4.2%, to 3.82 millions tons, from the year-earlier period, the country's General Administration of Customs said Monday. Imports are on track for their first year-on-year drop since 2013.

"This is further evidence of that slowing in China and that their demand for copper is going to continue to decline," said Paul Nolte, a portfolio manager with Kingsview Asset Management in Chicago. "Obviously, declining demand is going to keep the pressure on copper prices."

China accounts for about 40% of global copper demand and the import data highlighted long-running concerns that the country's economic slowdown would translate into lower copper imports. Recent reports showed that Chinese factory activity continues to contract and construction starts lag behind last year's pace.

Monday's fall in copper prices rattled the mining sector, which has been battered by a prolonged slump in prices of metals and other commodities. The S&P Metals and Mining Select Index, which tracks the share prices of 30 companies, fell 1% on Monday, bringing year-to-date losses to 46%.

Shares of Glencore PLC, one of the world's largest copper producers, declined 5.3%. Copper's selloff has been particularly painful for Glencore, which got 20% of its operating income from copper production in the first half of 2015.

Copper futures for December delivery, the most actively traded contract, fell 1.20 cents, or 0.5%, to $2.2300 a pound. That is the lowest since July 2009. So far this year, copper prices have slid 21%, compared with a 16% decrease in the S&P GSCI.

Moody's Investors Service, a credit-ratings firm, in September had highlighted copper below $2.20 a pound as a particular threat to Glencore.

However, Glencore has since put a number of mines up for sale and sold nearly $1 billion of future silver production to pay down its debt, helping assuage those worries, analysts and traders said.

"Management has been proactive in reducing debt and it's proving the skeptics wrong," said Charl Malan, who helps manage the $2.3 billionVan Eck Global Hard Assets Fund, which owns Glencore shares.

Glencore and other producers, such as Freeport McMoRan Inc., have shuttered mines and slashed capital spending on new projects in recent months in response to tumbling prices and weak demand.

Still, many investors and analysts say more existing mines are likely to close to make way for new ones that are expected to bring additional metal to the market in coming years. Global copper output is expected to reach a record 22.89 million metric tons this year, while demand is expected at 22.4 million metric tons, according to Barclays.

"There's over a million tons of additional supply coming on line next year and the year after during a time when demand is seeming to stall," said Dane Davis, a metals analyst with Barclays in New York. "Not only are prices going to be lower, they will be lower for a sustained (period)."

Mr. Davis said he expects copper to average $2.55 a pound in 2016 and $2.30 a pound in 2017.

Courtesy : www.nasdaq.com