Two of the world's most important industrial metals, copper and
nickel, fell to six- and 12½ -year lows on Friday, battered by a
negative mix of weaker Chinese growth, a stronger U.S. dollar and
too much metal.
The day's declines made nickel the first commodity to fall below
the levels it traded at before the financial crisis, while copper
has lost 11% of its value this month-to-date alone.
Many investors see little respite for these and other base
metals, as Chinese demand continues to wane and an expected U.S.
interest-rate rise bolsters the dollar.
The price falls will heap further pressure on some of the
world's largest miners, from Glencore PLC to Russia's Norilsk
Nickel, and put further strains on the budgets of many
emerging-market nations.
"Ultimately commodities are going to continue heading lower
(because) there's anticipation of China slowing down, Europe
slowing down and the dollar getting stronger," said Daniel
Pavilonis, a senior market strategist with RJO Futures in
Chicago.
The most actively traded copper futures contract, for December
delivery, was recently down 0.95 cent, or 0.5%, at $2.0670 a pound
on the Comex division of the New York Mercantile Exchange.
The London Metal Exchange's three-month nickel contract was down
3.1% at $8,670 a metric ton in afternoon European trade, having
fallen seven days in a row to hit a 12½ -year low at $8,650 a ton
earlier in the session.
Nickel has fallen due to lower-than-expected stainless-steel
consumption globally and destocking of inventories in China, the
world's largest consumer of most commodities. About 72% of last
year's nickel was used to make stainless steel where demand growth
is forecast to fall 2% as of November from the 4% expected in
April, according to data cited by Europe's largest stainless
steelmaker Outokumpu.
Even as demand falls, the world remains awash with excess nickel
supply. This year, analysts expect a surplus of 0.8% in this metal,
which goes into everything from skyscrapers to dishwashers.
"Stainless demand still looks quite sluggish and [there] doesn't
seem to be a willingness from the nickel producers to really cut
production," said Nicolas Robin, a commodities fund manager at
Columbia Threadneedle Investments, which has £ 311 billion ($473
billion) in assets under management and has moved to an underweight
metals position.
Copper is now trading at its lowest level since May 2009, hurt,
most recently, as the dollar gains ground against the euro.
Copper is widely used in construction and manufacturing, making
its price sensitive to shifts in the global economic outlook.
Prices have tumbled 27% this year on signs of slower economic
growth in China, the world's top copper buyer. Traders worry that
China's demand for copper will slow at a time when mine supply
continues to expand, leading to a prolonged glut of the metal.
Macquarie Research recently estimated that the copper market
will see a 0.6% surplus this year. But the mines keep coming. Next
year, four new mines will increase the world's copper production by
5.1%, according to Barclays.
All metals are also being pummeled by the rising dollar, which
is up 1.9% on the WSJ Dollar Index since Oct. 30. The dollar is
gaining as investors anticipate the first U.S. interest-rate rise
in almost a decade. A higher dollar makes dollar-price commodities
more expensive for most countries, including China.
Analysts estimate that half of all nickel production is now
unprofitable. For copper, around 15% to 20% of global production
capacity is loss-making at current copper prices, according to
Macquarie Research.
Brazilian mining firm Vale SA in April suspended the possible
initial public offering of its base-metals division after an
expected rebound in nickel prices failed to materialize. Vale's
share price is down 37% this year-to-date.
The falling price of copper has hammered the share prices of
Glencore PLC and Freeport McMoRan, down 37% and 65%, respectively,
this year. Both miners, and others, have tapped the stock market to
raise cash and have sold assets to shore up their balance
sheets.
"We're generally negative on metals as a sector," said Columbia
Threadneedle's Mr. Robin. "It's really difficult to see [any]
support for metals."
Write to Ese Erheriene at ese.erheriene@wsj.com, Tatyana Shumsky
at tatyana.shumsky@wsj.com and Alex MacDonald at
alex.macdonald@wsj.com
Subscribe to WSJ: http://online.wsj.com?mod=djnwires
(END) Dow Jones Newswires
November 20, 2015 14:45 ET (19:45 GMT)
Copyright (c) 2015 Dow Jones & Company, Inc.
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