LONDON: Copper prices tumbled to 4-1/2 month lows on Monday as a deteriorating demand outlook in China and the United States, the world’s two largest economies, triggered a selloff of the metal used in power and construction.
Signs of stalled industrial activity in top consumer China have weighed on copper prices on the London Metal Exchange (LME) for the past few months. Prices have dropped 20% since hitting record highs above $11,100 in May. Benchmark copper on the LME traded 3.3% down at $8,756 a metric ton in official rings from an earlier $8,714 a ton, its lowest since March 13.
A weak monthly US jobs report last week and a string of weak earnings reports from large technology companies has further undermined confidence across commodity and equities markets. “These markets are all linked. Metals and energy markets are sensitive to macro themes,” said Liberum analyst Tom Price. “Equity investors effectively link some of their portfolio to commodity markets either directly or through indices.”
European shares fell to multi-month lows while Japanese shares at one point exceeded their 1987 Black Monday loss as investors fled equities markets on US recession fears. Growing expectations of deeper interest rate cuts by the Federal Reserve to shore up growth hit the US currency, which should eventually help to support demand for dollar-priced metals.
In the near-term, however, the copper market is fretting about climbing inventories in LME-approved warehouses, which have risen by more than 140% since mid-May to three-year highs of 251,350 tons Most of the copper delivered to LME warehouses in Asia is of Chinese origin, according to industry sources. Elsewhere, lead hit $1,963 a ton for its lowest in nine months. Weak demand and high stocks in the LME system are behind lower prices for the battery metal, which was last down 2.9% at $1,964. Ample stocks are behind the persistent discount for cash metal over the three-month contract since March. In other metals, aluminium slipped 1.7% to $2,226 a ton, zinc ceded 2.9% to $2,576, tin was down 4.3% at $28,900 and nickel retreated 1.8% to $15,975.