Declines 9% in three-day, 13% YTD on lower demand, banks stop accepting copperas collateral on estimates of further fall
Copper price fell 13% so far this year due to various macroeconomic worries ranging from Chinese credit tightening concerns, Russia-Ukraine tensions, sluggish Japanese and US economic data that led to overall slide in industrial commodities.In the last three session over the previous week, copper recorded one of its sharpest fallsof around 9% to settle at $6380 a tonne on the London Metal Exchange (LME) from $7220 a tonne.
With this slide, copper hit the lowest level sinceJune 2010. Apparently, its demand is being questioned further as China , the world's largest consumer, sees exports and inflation contracting at a fasterrate than expected.
"China's first domestic bonddefault sent fear rippling through the market that tightening credit is taking its toll. The future of copper's price is not necessarily based on past trends.Supply shocks are largely unpredictable (for example, the Indonesian ban onexports of nickel have driven the S&P GSCI Nickel up 13.1% in 2014 and it is used in everyday consumer life like copper) but can have a huge impact, especially in times of low inventory like the market is experiencing now.
Currently, the S&P GSCI has been in backwardation- or a shortage- for four months straight as of the end of February and continues running a shortage inMarch - this is significant since there hasn't been a copper shortage as measured by the index for five straight months since 2008. If this continues, it will be difficult for copper to continue its losing streak," Jodie Gunzberg, global head of commodities at S&P Dow Jones Indices. Although supply is arguably more important to copper's price than demand, greater fears than usual about a slowdown in China's GDP growth has driven the S&P GSCI Copper down 7.9% this month and 11.8% YTD in 2014.
"There are a lot of questions around China's situation right now including fading industrial and consumer demand, fear of more defaults across the financial spectrum andrepeat of 2008 - like credit crunch. What is compounding the situation is the emergence of how much copper is being used as collateral. If there are worries in a general sense about financial condition in China, copper is perhaps moreexposed to that than other metals due to substantial rise in Chinese inventory," said Navneet Damani, Associate Vice President, Motilal Oswalcommodities Brokers.Copper, one of the leading indicators of global economic health, is by far the worst performer among the metals this year.
The market is not factoring in basic supply -demand elements, and copper may have been oversold. In fundamental terms, theglobal copper market is fairly tight, meaning there is no long term justification for low prices.Rising mining cost also poses a threat to future supplies, and could underpin prices. In 2014alone, the real expense of producing copper may be as much as 87%higher than back in 2007 due to high labour and energy costs.
But, if copper price keeps falling, those holding it in warehouses will be forced to sell,which could push prices lower. Banks as well could be less willing to accept the metal as collateral, said Damani.In the medium term, the currently low prices make it unattractive to commission new mining projects, which will tighten supply in the medium term.
"Asian markets were set for another tense session in coming days as worries about China 'seconomy continue to reverberate, taking a particularly hard toll on commodity prices. February's shock fall in exports from the Asian behemoth has cast ashadow over the global outlook, even as analysts blamed much of the drop on theLunar New Year holidays," Kishore Narne, Head - Commodity & Currency Motilal Oswal Commodity Broker Pvt Ltd.
The Federal Reserve will continue to trim its monthly asset purchases at a $10 billionpace, an influential Fed official said on Monday as he also detailed how the U.S. central bank might rewrite its plan for keeping interest rates low. Europe's and Asia 's industrial health will be closely watched in the coming week for anindication of how solid - or weak - a footing the global economy was on at thestart of the year. With China 's leaders seeking to rebalance the world'sindustrial powerhouse more toward consumer spending, and with bad weather distorting most United States data since the start of the year, some clarity would be helpful.
Copper price fell 13% so far this year due to various macroeconomic worries ranging from Chinese credit tightening concerns, Russia-Ukraine tensions, sluggish Japanese and US economic data that led to overall slide in industrial commodities.In the last three session over the previous week, copper recorded one of its sharpest fallsof around 9% to settle at $6380 a tonne on the London Metal Exchange (LME) from $7220 a tonne.
With this slide, copper hit the lowest level sinceJune 2010. Apparently, its demand is being questioned further as China , the world's largest consumer, sees exports and inflation contracting at a fasterrate than expected.
"China's first domestic bonddefault sent fear rippling through the market that tightening credit is taking its toll. The future of copper's price is not necessarily based on past trends.Supply shocks are largely unpredictable (for example, the Indonesian ban onexports of nickel have driven the S&P GSCI Nickel up 13.1% in 2014 and it is used in everyday consumer life like copper) but can have a huge impact, especially in times of low inventory like the market is experiencing now.
Currently, the S&P GSCI has been in backwardation- or a shortage- for four months straight as of the end of February and continues running a shortage inMarch - this is significant since there hasn't been a copper shortage as measured by the index for five straight months since 2008. If this continues, it will be difficult for copper to continue its losing streak," Jodie Gunzberg, global head of commodities at S&P Dow Jones Indices. Although supply is arguably more important to copper's price than demand, greater fears than usual about a slowdown in China's GDP growth has driven the S&P GSCI Copper down 7.9% this month and 11.8% YTD in 2014.
"There are a lot of questions around China's situation right now including fading industrial and consumer demand, fear of more defaults across the financial spectrum andrepeat of 2008 - like credit crunch. What is compounding the situation is the emergence of how much copper is being used as collateral. If there are worries in a general sense about financial condition in China, copper is perhaps moreexposed to that than other metals due to substantial rise in Chinese inventory," said Navneet Damani, Associate Vice President, Motilal Oswalcommodities Brokers.Copper, one of the leading indicators of global economic health, is by far the worst performer among the metals this year.
The market is not factoring in basic supply -demand elements, and copper may have been oversold. In fundamental terms, theglobal copper market is fairly tight, meaning there is no long term justification for low prices.Rising mining cost also poses a threat to future supplies, and could underpin prices. In 2014alone, the real expense of producing copper may be as much as 87%higher than back in 2007 due to high labour and energy costs.
But, if copper price keeps falling, those holding it in warehouses will be forced to sell,which could push prices lower. Banks as well could be less willing to accept the metal as collateral, said Damani.In the medium term, the currently low prices make it unattractive to commission new mining projects, which will tighten supply in the medium term.
"Asian markets were set for another tense session in coming days as worries about China 'seconomy continue to reverberate, taking a particularly hard toll on commodity prices. February's shock fall in exports from the Asian behemoth has cast ashadow over the global outlook, even as analysts blamed much of the drop on theLunar New Year holidays," Kishore Narne, Head - Commodity & Currency Motilal Oswal Commodity Broker Pvt Ltd.
The Federal Reserve will continue to trim its monthly asset purchases at a $10 billionpace, an influential Fed official said on Monday as he also detailed how the U.S. central bank might rewrite its plan for keeping interest rates low. Europe's and Asia 's industrial health will be closely watched in the coming week for anindication of how solid - or weak - a footing the global economy was on at thestart of the year. With China 's leaders seeking to rebalance the world'sindustrial powerhouse more toward consumer spending, and with bad weather distorting most United States data since the start of the year, some clarity would be helpful.
