Copper slips on China economy worries, despite import surge

Three-month copper on the London Metal Exchange fell 0.79% at $5,273.25 a metric ton at the PM kerb close. The response of the global economy, particularly emerging markets, to a possible interest rate hike by the US Federal Reserve and the effect of prolonged low commodities prices in exporting countries will see base metal prices move up.

Base metals including copper have slumped to multi-year lows in 2015, hurt by the slowdown in China, the world’s largest user.

“It’s financial arbitrage rather than fundamental demand”, said Sergey Raevskiy, metals analyst at SP Angel.

Mr. Donskoy predicts that demand in the copper market will be flat this year and sees little, at present, that could push prices higher, given that supply is still excessive despite of a round of cuts from mining companies. “But, year to date, are still down”.

Glencore, this year’s worst performer on the U.K.’s benchmark stock index, has responded to slumping demand by shuttering production of zinc, copper and coal and selling assets to cut debt.

Copper was also expected to strengthen adding $500 to todays’s price around $5,300 over the next year, while tin should continue its good run holding onto its gains around $15,000 a tonne.

As the bank notes, in its latest bearish note on the commodity space (perhaps a reason in itself to buy commodities), beyond the obvious relationship that strong (weak) Chinese growth equals rising (falling) commodity prices, its “China Leverage Score (see Exhibit 1) attempts to provide a simple composite measure of which commodities are most exposed to China demand, by combining share in global demand (squared) plus net imports (as a share of global demand)”. The nation’s slowing demand for commodities has broadsided the world’s biggest metal producers and trading houses, who have been forced to cut output, reduce costs and restrict future investment.

The lackluster results from trading houses are a key topic of conversation at the London Metal Exchange’s annual gathering this week, when a few are calling the setback temporary due to the collapse in aluminum premiums. The upsurge continued on Monday with the metal recording a 1.8 per cent jump in early trade to $1,881.5 a tonne, before declining a bit to $1,870 a tonne on profit booking.

Three-month aluminium was 0.3 percent lower at $1,589 a tonne.

Anglo American Plc fell 3.7 percent, while BHP Billiton Ltd., the biggest miner, declined 2.1 percent.

Zinc soared 10 percent on Friday in its largest single-day gain in at least a decade following the Glencore supply cuts.