Metals Pare Best Rally Since 2012 as China Curbs Speculation

Updated on
  • China is clamping down on fund flows into commodities: Citi
  • Miners also slump, with Freeport and Vale among decliners

Goldman Sachs Goes Long Commodities in Reflation Trade

Industrial metals slumped, paring the biggest monthly rally in four years, on signs that China is taking steps to cool a trading frenzy in commodities.

The Shanghai Futures Exchange and Dalian Commodity Exchange have raised margins and fees to ease a trading frenzy that’s fueled aggressive price gains this month, and further measures are expected, according to Citigroup Inc. analysts.

“Chinese investors trigger copper prices back to life, but not back to reality,” Citigroup analysts including David Wilson wrote in an e-mailed note. Prices may fall as China takes steps to “skim speculative froth on industrial commodity markets,” they said.

Copper fell from the highest in more than a year as all the main industrial metals on the London Metal Exchange tumbled. Copper for delivery in three months slid 3 percent to settle at $5,705 a metric ton at 5:53 p.m. in London, the first drop in seven days.

  • Freeport-McMoRan Inc., the largest publicly traded copper miner, headed for the biggest loss in almost four weeks as a gauge of base-metals producers tracked by Bloomberg Intelligence was set for its steepest decline in two weeks.
  • Rebar in Shanghai dropped 8.1 percent, the most since trading began more than seven years ago, after the exchange introduced trading curbs.
  • Steel producers also declined. Macquarie Group Ltd. analyst Aldo Mazzaferro earlier downgraded six steel companies, saying they are expensive based on historic valuation and further steel-price increases are unlikely.
  • Iron ore fell from a two-year high, with supplies seen ample. Vale SA slumped 4 percent in Sao Paulo.

Still, metals are up significantly this month and the Bloomberg Industrial Metals Sub-index has climbed almost 10 percent, poised for the biggest monthly advance since September 2012.

“The fundamentals for the copper market have not changed materially in the last month, but don’t stand in the way of the rolling ball of money in China,” Jessica Fung, an analyst at BMO Capital Markets, wrote in a note dated Monday. “We don’t disagree with the direction of sentiment, but the pace of price appreciation is unwarranted. From a fundamental, supply/demand perspective, the broader story is well known –- supply growth is slowing while demand remains positive and stable.”