Metals plunge on mounting concerns over growth in China, US

Sheets of copper cathode are seen at the copper cathode plant inside the La Escondida copper mine near Antofagast, Chile.
Sheets of copper cathode are seen at the copper cathode plant inside the La Escondida copper mine near Antofagast, Chile. PHOTO: REUTERS

NEW YORK/LONDON (BLOOMBERG) - Copper posted the biggest two-day loss since 2015 on Thursday (May 4) as industrial metals plunged amid concern over demand in China and speculation that the Federal Reserve will further raise US interest rates this year. Mining shares also extended losses.

Demand concerns are mounting just as copper stockpiles tracked by the London Metal Exchange jumped 25 per cent in two days, the most since March, signaling ample supplies. The Bloomberg World Mining Index of equities fell for a fourth day as iron ore tumbled in Dalian and steel plummeted in Shanghai.

Metals have come under pressure after data this week signaled a slowdown in China's manufacturing, with the LMEX Index of six major metals tumbling 2.5 per cent on Wednesday and a further 0.8 per cent on Thursday. The Asian country is also experiencing tighter liquidity during a crackdown on risk, with the onshore benchmark money-market rate rising to the most expensive in two years.

Meanwhile, the Fed on Wednesday indicated it's still on track to raise rates this year.

"We expect the broader category of industrial metals to fall from current levels as expectations for slower growth in China are priced into the sector," said Simona Gambarini, a commodities economist at Capital Economics Ltd. In addition, "markets are now readjusting their expectations for further tightening."

Copper for delivery in three months slid 1 per cent to settle at US$5,543 a metric ton at 5:51pm on the LME, after declining 3.5 per cent on Wednesday. The two-day loss is the biggest since July 2015. On the Comex in New York, copper for delivery in July also plunged.

The Bloomberg World Mining Index of 127 companies slid as much as 2.3 per cent, with Vedanta Resources and HudBay Minerals among the worst performers.

Iron ore is in full-scale retreat, with futures in China plunging to end limit-down. Steel futures also slumped in Shanghai.

Tighter liquidity is a concern for some steel producers who are "overly leveraged," said Xiao Fu, an analyst at BOCI Global Commodities UK Ltd.

Nickel dropped to a 10-month low on the LME after lawmakers in the Philippines rejected the appointment of Gina Lopez as Environment Secretary. The metal fell 2.3 per cent to settle at US$9,015 a metric ton, extending a 3 per cent drop on Wednesday.

Lopez, an environmentalist-turned-politician, had undertaken nationwide inspections on mines in the Philippines, ordering the closing of more than half the country's metal mines, rescinding permits for areas yet to be developed and canceling future open-pit operations.

The pain may be fleeting for investors who hang tight, according to Barclays. The market forces battering US oil and natural gas producers and knocked copper for its biggest two-day loss since 2015 are forceful - but not necessarily harbingers of a recession, analysts Michael Cohen, Dane Davis and Warren Russell said in a research note ON Thursday.

"Assigning blame to one factor risks missing dynamics unique to each commodity that could eventually prove transitory," they said.