FCX Freeport McMoRan Inc

By Tatyana Shumsky 

Copper prices extended their six-year low on Tuesday after Chinese inflation decelerated, stoking investor concerns about demand from the world's top copper buyer.

China's consumer price index, a measure of inflation, rose 1.3% in October from a year earlier, less than the 1.4% gain economists predicted and a slowdown from September's 1.6% increase. The lack of price pressure suggests that demand and overall economic activity continue to lose steam in the world's no. 2 economy.

"The Chinese economy is in a slowdown and it needs more stimulus to start movement that would utilize all the copper they already have," said Ira Epstein, a broker with Linn & Associates in Chicago. "If they don't stimulate, you're going to get another leg lower to $2.10 copper and it's going to create a lot of pain."

China drives about 40% of the world's copper demand, but investors worry the country's metal purchases will decline as its economic growth sputters. The industrial metal is widely used in construction and manufacturing, two sectors of China's economy where activity has been slowing. Some traders fear that as China cuts back its copper purchases, demand from other countries won't pick up the slack, leading to a substantial supply surplus.

"There's nobody really that can step in and consume copper at the rate that China can consume it," said Bob Haberkorn, a senior commodities broker with RJO Futures in Chicago. "There's no other country out there that's in an infrastructure boom the size that China has had over the past 10 years."

The most actively traded copper-futures contract, for December delivery, fell 1.25 cents, or 0.6%, to settle at $2.2175 a pound on the Comex division of the New York Mercantile Exchange. This was the lowest close since July 10, 2009.

The decline in copper prices reverberated across the global mining sector, which has struggled to cope with the prolonged slump in commodities. The S&P Metals and Mining Select Index, which tracks the share prices of 30 companies, was recently down 0.8%, bringing year-to-date losses to 46%.

Shares of Glencore PLC, one of the world's largest copper producers, were down 4.2%. 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.

So far this year, copper prices have slid 22%, 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 billion Van 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.

Settlements: 
Nov $2.2165, down 1.35 cents; Range $2.2090-$2.3190 
Dec $2.2175, down 1.25 cents; Range $2.2060-$2.2420 

Write to Tatyana Shumsky at tatyana.shumsky@wsj.com

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(END) Dow Jones Newswires

November 10, 2015 13:59 ET (18:59 GMT)

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