By Ira Iosebashvili And Ese Erheriene
Copper prices suffered their biggest one-day decline in over
three years Wednesday, reflecting mounting concerns among investors
about the health of the world economy.
The bulk of Wednesday's losses occurred during Asian trading
hours after the World Bank cited concerns over a "disorderly
slowdown" in China and cut its outlook for global growth in
2015.
The red flags in the World Bank's report hit copper hard because
the metal is used across a wide swath of industries, from
smartphones to automobiles, making it a popular economic barometer
for many investors. China also looms large in the market as the
country is by far the biggest copper consumer. Even a small decline
in Chinese demand can leave the market swimming in metal and send
prices tumbling.
Copper for March delivery ended down 5.2% at $2.5055 a pound on
the Comex division of the New York Mercantile Exchange, the lowest
closing price since July 2009 and the biggest percentage drop since
October 2011. Copper is now down 11.3% this year, the steepest
decline among commodities after oil and refined products.
Many investors fear plunging copper prices are a harbinger for a
worse-than-expected slowdown in China, the world's second-largest
economy. That, along with the relentless decline in oil prices and
the potential for a recession in Europe, has spooked financial
markets, sparking a selloff in U.S. stocks this week and sending
investors to seek safety in Treasurys and gold.
"The dumping of copper is saying that the world economy is not
on a stable footing," said Ira Epstein, a broker at the Linn Group,
a commodities-trading firm based in Chicago. "This is the sign of a
global issue."
Copper traders and analysts were already expecting a global
surplus of the metal this year, the first since 2009 and the
largest since 2001. World production of refined copper is expected
to exceed demand by 390,000 tons in 2015, the International Copper
Study Group said in December.
The potential for a glut has weighed on prices for months, with
futures falling 12% in the second half of 2014. However, the
selling intensified this week, with investors dumping copper as
part of a general move out of commodities driven by plunging oil
prices.
After falling sharply on Monday and Tuesday, selling in Asia on
Wednesday appears to have been driven in part by investors who
opted to unwind bets in the copper market to prevent further
losses, traders said. Copper fell below $6,000 a ton on the London
Metal Exchange on Tuesday, a psychologically important level.
Copper for delivery in three months ended down 5.3% at $5,548 a
ton on the LME. Industrials metals across the board fell. Aluminum
hit a seven-month low and was recently down 0.4% at $1,783.75 a
metric ton; nickel traded at $14,560 a metric ton after hitting an
11-month low earlier in the day. Lead hit a 2 1/2 -year low and
fell 3.4% at $1,766.50 a ton.
Mining and metals stocks also declined sharply Wednesday.
Bearing the brunt of the selloff was Glencore PLC, the world's
third-biggest copper miner and largest supplier of the metal which
also depends on commodities trading for its profit. Its shares fell
9.3% in London trading. Mining companies Anglo American PLC fell 9%
and BHP Billiton PLC, 5.3%, and Rio Tinto PLC, 4%.
Not everyone is convinced the selloff is warranted. One
potential turning point for copper is the Lunar New Year on Feb.
19, as demand traditionally starts to pick up in China after the
holiday lull, investors said.
Some investors believe supply in the copper market will be
tighter than expected next year, as the industry maxes out
production at many of the world's easily accessible mines, making
it more difficult to bring product to the market.
Copper's nose-dive is also likely to force companies to cut
production, investors said. About 20% of the world's mined-copper
supply is unprofitable when copper prices are at $2.50 a pound,
said Charl Malan, senior metals and mining analyst with Van Eck
Global Hard Assets fund, which had $3.3 billion in assets at the
end of 2014.
"There's a big probability that current production gets cut and
that new projects, that are supposed to deliver a 5% supply growth
in 2016, will not happen," Mr. Malan said.
Mr. Malan said his fund holds no positions in the copper
market.
Biman Mukherji and Tatyana Shumsky contributed to this
article.
Write to Ira Iosebashvili at ira.iosebashvili@wsj.com and Ese
Erheriene at ese.erheriene@wsj.com
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