Aggressive, synchronized short selling, especially from leveraged Chinese hedge funds, has pushed copper prices too low, according to Glencore Plc.
Indicators of supply and demand suggest prices should be higher, the company said in its earnings statement on Wednesday. Mine disruptions from Chile to Zambia mean producers aren’t delivering as much metal as expected, and mining companies may cut production if prices fall further, Glencore said.
“The actual physical flows, the inventory levels are not justifying the prices where they are today,” Chief Executive Officer Ivan Glasenberg said on a conference call. “It’s hedge funds, it’s Chinese hedge funds, it’s U.S hedge funds. They’re all just hitting the commodities at the moment.”
The plunge in copper is hurting companies like Glencore, which reported a 56 percent drop in first-half profit and cut the earnings forecast for its trading division. Copper is down 20 percent this year as China’s slowing economy means less metal is required for construction and manufacturing.
Bearish speculators have piled into the metal and wagers betting on further declines are at the highest on record, U.S. Commodity Futures Trading Commission data show.
“You can’t fight against the flow of money,” Glasenberg said.
Prices fell below $5,000 a ton this week for the first time since 2009 and about a fifth of mines are now losing money, Macquarie Group Ltd. estimates.
A growing proportion of miners are struggling with prices this low, Glencore said in its earnings release. Production cutbacks are inevitable in a “doomsday scenario” of prices falling to about $4,400 a ton, Glasenberg said.
“You start to see copper getting down to certain levels, you’re going to see a lot of production cuts,” Chief Financial Officer Steve Kalmin said Wednesday. “That feeds through to the system. There’s going to be no copper around in 12 months’ time.”
Bad weather, power issues and strikes have made it difficult to mine for copper. The disruptions have affected about 600,000 metric tons so far this year, Baar, Switzerland-based Glencore estimates.
The company’s metals and minerals business saw adjusted earnings before interest and tax drop 50 percent to $444 million during the first half. It cited “tough trading conditions” particularly a collapse in aluminum premiums and subdued stainless steel output. The company expects its trading business to improve in the second half.
Peter Grauer, the chairman of Bloomberg LP, the parent of Bloomberg News, is a senior independent non-executive director at Glencore.
“Oversupply, undersupply all depends on demand in China,” Glasenberg said on a conference call. “That’s the one that we’re all struggling to read.”