Copper, Aluminum Prices Fall to Six-Year Lows -- Update
DOW JONES & COMPANY, INC. 6:42 AM ET 08/03/15
LONDON--Copper and aluminum prices sank to their lowest levels in six years on the London Metal Exchange on Monday, as industrial metals took a fresh hit from China's slowing economy.
Yet more disappointing economic news out of China raised questions about the government's ability to steady the economy.
The Caixin China manufacturing purchasing managers index, or PMI, fell to a final reading of 47.8 in July, a two- year low. A number below 50 indicates economic contraction. This followed Saturday's announcement by the government's National Bureau of Statistics that China's official PMI slipped to 50.0 in July from 50.2 in June.
Consumption of industrial metals by the Asian giant fueled a more-than decadelong rally in prices after the turn of the century. But concern over the nation's slowing economic growth has caused prices in London, the world's center for trading in industrial metals, to slide over the past 12 months.
Despite the Chinese government's efforts, economic data continues to be lackluster. China is the biggest consumer of base metals and its economic health has an outsize impact on metal prices. With its economy seen to be in trouble, concerns that demand might not be as strong led prices to slump.
"Clearly, it's disappointing. Especially in light [of the fact] that the Chinese central bank has already implemented many fiscal measures to counter the slowdown--obviously without having much success so far," said Daniel Briesemann, a metals analyst at Commerzbank.
The LME's three-month copper contract was down 1.2% at $5,165 a metric ton in morning European trading, having dipped to a low of $5,142 a ton. Meanwhile, the LME's three-month aluminum contract was down 0.4% at $1,610 a ton, having plunged to its cheapest price since July 2009 earlier in the session at $1,601.50 a ton.
The entire base metals group looked shaky in London trading on Monday. The LME handles more than 80%--or almost $15 trillion--of the global nonferrous metals business. The LME is one of the world's oldest exchanges and its prices are used as benchmarks around the world by everyone from producers to retailers.
Lead reached a five-year low of $1,672 a ton; zinc was down 1.4% at $1,888.50 a ton; nickel was down 3.3% at $ 10,675 a ton; and tin was down 1.4% at $16,075 a ton.
Aside from China, there are other factors contributing to the pressure on metals prices. On the LME, the number of bets that copper prices will fall is at "extreme" levels, according to Marex Spectron, so any bad news tends to have an exaggerated effect on prices.
"The PMIs were weak, but the PMIs were weak all year. I don't feel like anything has really shifted, so it feels much more speculatively driven, " said Vivienne Lloyd, an analyst at Macquarie in London.
Moreover, tax breaks for Chinese aluminum producers mean they continue to churn out the commodity even though the domestic market is oversupplied. The metal is increasingly finding its way abroad, according to analysts, which puts pressure on global prices.
Aluminum "has been hit hard recently, given that China is now apparently exporting its surplus with much less restraint than it's exhibited in previous years," said Ms. Lloyd.
The prospect of an interest rate hike in the U.S. is also weighing on investors' minds. That possibility has sent the dollar soaring against most major currencies in recent months, putting further pressure on dollar-priced metals, which become more expensive for foreign buyers when the U.S. dollar strengthens.
The slump in base metals is likely to continue unless there is any sign of a turnaround in China.
"For now, the path of least resistance is to the downside with the poor Chinese economic outlook weighing on sentiment and prices," said William Adams, head of research at Fastmarkets.
Write to Ese Erheriene at ese.erheriene@wsj.com
(END) Dow Jones Newswires
08-03-150642ET
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