Copper Falls With Mining Stocks as Barclays Warns of Pullback

Copper Processing Fees in China Tumble
  • Barclays says commmodities could fall 25 percent in worst case
  • Glencore, Kaz Minerals lead global mining shares lower

Copper declined for a third session, the longest streak in more than a month, as data signaled weaker Chinese demand and Barclays Plc said commodity prices could tumble.

China’s non-industrial use of copper, mainly construction, has been overstated by about 15.5 million metric tons since 2011, based on Bloomberg Intelligence analysis of property data. The carry trade allows copper to be warehoused as collateral to back interest-rate trades that yield out-sized profits, BI said.

“It’s concerning because they could put that copper back into the market and drive the price down,” Mariann Montagne, an Arden Hills, Minnesota-based senior investment analyst at Gradient Investments, which oversees $870 million, said in a telephone interview. “They’re completely unpredictable,” she said, referring to market players in China.

Copper for delivery in three months dropped 1.1 percent to settle at $4,890.50 a metric ton ($2.22 a pound) at 5:51 p.m. on the London Metal Exchange, capping the longest losing streak since Feb. 25. The price may slump to the low $4,000s, as investors rush for the exits, Barclays Plc analysts wrote in a research note.

“Investors have been attracted to commodities as one of the best-performing assets so far in 2016,” Barclays analysts including Kevin Norrish and Michael Cohen wrote. “In the absence of any concerted fundamental improvements, those returns are unlikely to be repeated.”

‘Negative Consequences’

“The risk for commodities is that investors seek to liquidate long positions quickly and in unison, with potentially highly negative consequences for prices,” they said.

Premiums paid on copper imports by buyers in China, the world’s biggest consumer, have sunk to $50 a metric ton, the lowest since at least November 2012, according to industry adviser SMM Information & Technology Co.

In China, sliding copper premiums are signaling the end of a buying spree by importers that’s driven Shanghai exchange stockpiles to a record, according Li Chunlan, copper analyst at consultancy CRU Group in Beijing. Lower fees indicate weaker demand and may presage a decline in purchases, which can hurt world prices.

  • Zinc, nickel, lead and tin also declined on the LME, while aluminum rose. Copper slipped on the Comex in New York.
  • A gauge of 18 large global base metal producers tracked by Bloomberg Intelligence fell 1.1 percent, led by losses in Glencore Plc, and Kaz Minerals Plc.
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