Copper's Rout Deepens As China's Inflation Decelerates
November 10 2015 - 2:14PM
Dow Jones News
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
Subscribe to WSJ: http://online.wsj.com?mod=djnwires
(END) Dow Jones Newswires
November 10, 2015 13:59 ET (18:59 GMT)
Copyright (c) 2015 Dow Jones & Company, Inc.
Freeport McMoRan (NYSE:FCX)
Historical Stock Chart
From Aug 2024 to Sep 2024
Freeport McMoRan (NYSE:FCX)
Historical Stock Chart
From Sep 2023 to Sep 2024