Copper slumped into a bear market in London and New York, capping the biggest weekly drop in 16 months, on concern that slowing economies from China to the U.S. will reduce demand as supply of the metal expands.
China’s economy has grown by less than 8 percent in the past four quarters, the longest streak in at least 20 years. An index of leading U.S. economic indicators released yesterday unexpectedly fell. Copper inventories tracked by the London Metal Exchange almost doubled in 2013.
“The copper market has been an accurate leading indicator, and it’s not pointing to a good bottom for China’s economy,” Jeffrey Sica, who helps oversee more than $1 billion as president of SICA Wealth Management in Morristown, New Jersey, said in a telephone interview. “That’s ominous, and it continues to be a major concern in markets.”
Copper for delivery in three months fell 1.4 percent to close at $6,990 a metric ton on the LME today. That was below the level of $6,992, marking a 20 percent drop from the February 2012 closing high, meeting the common definition of a bear market. The weekly retreat of 5.6 percent was the biggest since the week of Dec. 16, 2011.
Production of the metal will exceed demand by 341,000 tons this year, more than last year’s 238,000 tons, according to Citigroup Inc. LME copper stocks jumped 92 percent to 614,350 tons this year, exchange figures showed today.
“The increase in copper stocks gives reason to think supplies are plentiful, and China’s growth is not what people expected it to be,” Harry Denny, a broker at Hoboken, New Jersey-based PVM Futures Inc., said in a telephone interview yesterday. “The market is well-supplied, and we’re going to continue to see pressure on prices.”
Inventories monitored by the Shanghai Futures Exchange declined to 223,663 tons this week, bourse data showed today. Bonded warehouses in the country hold 600,000 tons of copper, used in pipes and wiring, Paul Crone, chief investment officer at Citrine Capital Management LCC, said April 17.
“It will still be down to China to support the market,” Andrey Kryuchenkov, an analyst at VTB Capital in London, said today by phone.
In New York, copper futures for delivery in July tumbled 1.7 percent to settle at $3.163 a pound on the Comex, also capping a 5.6 percent weekly drop that was the biggest since Dec. 16, 2011. With today’s close, futures have fallen 20 percent from the February 2012 peak, entering a bear market.
Prices slid this week as the International Monetary Fund lowered estimates for Chinese and world growth this year on April 16. A deadly bird-flu outbreak is rippling through the Asian nation, the world’s biggest consumer of raw materials from copper to soybeans.
“Many base-metal prices are moving toward marginal industry costs,” Michael Lewis, head of commodities research at Deutsche Bank AG in London, said in a report today. “We expect a more supportive environment for the sector will emerge during the second half as Chinese growth recovers.”
Purchases of physical copper by Chinese buyers picked up this week, according to Barclays Plc. The metal is “vulnerable” to a short-covering rally as most investors have bet on falling prices, Gayle Berry, an analyst at Barclays in London, said in a report today. Short-covering denotes purchases to close out wagers on a falling market.
Also in London, nickel for delivery in three months declined 2.4 percent to $15,170 a ton, after touching $15,160, the lowest since July 2009. Macquarie Group Ltd. raised its estimate for this year’s surplus to 82,000 tons from 54,000 tons.
Aluminum and zinc fell. Tin and lead rose on the LME.