Metals Extend Sell-Off on Mounting China Concerns, Fed Outlook

  • Prices pressured by slowdown in China’s manufacturing sector
  • Copper stockpiles tracked by LME jumped 25 percent in two days

Why Precious Metals Are Dropping

Copper posted the biggest two-day loss since 2015 as industrial metals plunged amid concern over demand in China and speculation that the Federal Reserve will further raise U.S. interest rates this year. Mining shares also extended losses.

Demand concerns are mounting just as copper stockpiles tracked by the London Metal Exchange jumped 25 percent in two days, the most since March, signaling ample supplies. The Bloomberg World Mining Index of equities fell for a fourth day as iron ore tumbled in Dalian and steel plummeted in Shanghai.

Metals have come under pressure after data this week signaled a slowdown in China’s manufacturing, with the LMEX Index of six major metals tumbling 2.5 percent on Wednesday and a further 0.8 percent Thursday. The Asian country is also experiencing tighter liquidity during a crackdown on risk, with the onshore benchmark money-market rate rising to the most expensive in two years. The Fed on Wednesday indicated it’s still on track to raise rates this year.

“We expect the broader category of industrial metals to fall from current levels as expectations for slower growth in China are priced into the sector,” said Simona Gambarini, a commodities economist at Capital Economics Ltd. In addition, “markets are now readjusting their expectations for further tightening.”

Copper for delivery in three months slid 1 percent to settle at $5,543 a metric ton at 5:51 p.m. on the LME, after declining 3.5 percent on Wednesday. The two-day loss is the biggest since July 2015. On the Comex in New York, copper for delivery in July also plunged.

The Bloomberg World Mining Index of 127 companies slid as much as 2.3 percent, with Vedanta Resources Plc and HudBay Minerals Inc. among the worst performers.

Limit-Down

Iron ore is in full-scale retreat, with futures in China plunging to end limit-down. Steel futures also slumped in Shanghai.

Tighter liquidity is a concern for some steel producers who are “overly leveraged,” said Xiao Fu, an analyst at BOCI Global Commodities UK Ltd.

Nickel dropped to a 10-month low on the LME after lawmakers in the Philippines rejected the appointment of Gina Lopez as Environment Secretary. The metal fell 2.3 percent to settle at $9,015 a metric ton, extending a 3 percent drop on Wednesday.

Lopez, an environmentalist-turned-politician, had undertaken nationwide inspections on mines in the Philippines, ordering the closing of more than half the country’s metal mines, rescinding permits for areas yet to be developed and canceling future open-pit operations.

— With assistance by Winnie Zhu

    Before it's here, it's on the Bloomberg Terminal.
    LEARN MORE