London copper sagged to a new 6-1/2-year low on Monday, with other metals near their own multi-year troughs, as China’s slowing factory demand pushes more supply onto global markets and the dollar strengthens against a slew of other currencies.
Base metals have been punished on one hand by slowing economic growth in top user China, and on the other by a strong dollar that has cut the buying power of other currencies ahead of an expected US interest rate hike in December.
Metals tied to China’s huge steel sector were especially hard hit on Monday, with London zinc and London nickel plunging nearly 4 per cent and more than 5 per cent, respectively.
Demand was unlikely to pick up ahead of year-end, as producers and manufacturers conserve cash flow, said analyst Helen Lau of Argonaut Securities.
“Further price weakness ahead seems likely,’’ she said, noting that funds were selling copper because of signs of poor demand, such as sluggish sales of air conditioners and property.
Euro, yuan
In signs of the weakening buying power in major consumer markets, the euro extended its losses and hit a seven-month low against the dollar, while China’s onshore yuan opened at its weakest since August following a lower official mid-point fix.
Three-month copper on the London Metal Exchange (LME) slid 2 per cent to $4,489.50 a tonne by 0310 GMT, having earlier struck its weakest since May 2009 at $4,461.50.
Shanghai Futures Exchange copper dropped 3 per cent to 33,730 yuan ($5,281) a tonne, having also hit a six-year low.
Shanghai nickel fell further, going limit down at 6 per cent on concerns that China’s steel glut would hit other steel-making materials. Meanwhile, Shanghai zinc erased early gains to turn flat, shrugging off last week's news about planned huge supply cuts in China.
Investors turn bearish
Investors are turning increasingly bearish on metals. In copper, hedge funds and money managers increased their net short positions by 8,430 lots to 27,827 lots, the biggest such gain since mid-August, Commodity Futures Trading Commission (CFTC) data showed.
The global world refined copper market showed an 81,000-tonne surplus in August, compared with a 3,000-tonne deficit in July, the International Copper Study Group said.
In a sign of a possible boost in future demand, China is offering $10 billion in infrastructure loans to Southeast Asian countries, a senior Chinese foreign ministry official said on Sunday.
New steel and aluminium contracts being launched by the LME on Monday are expected to attract initial interest from customers, but building up strong liquidity in the current bear market may be challenging.