Copper prices have tumbled to 40-month lows as slowing demand fed expectations of surpluses and a large amount of metal was delivered to London Metal Exchange-approved warehouses.
Benchmark copper on the London Metal Exchange closed 2.8 per cent down at $US5,144 a tonne.
Prices of the metal used widely in power, construction and manufacturing hit $US5,127 during the session, a drop of 20 per cent since the middle of January and the lowest since November 2016.
“The market was expecting a balanced copper market, but declining demand means we’ll probably see significant surpluses,” one commodity trader said.
“To restore some sort of balance we need restraint on the supply side and that may not happen without lower prices.”
VIRUS: Economic activity in top consumer China and other major economies has been shredded by government measures to contain the coronavirus, which has so far claimed more than 7,000 lives.
POLICY: Investors have viewed action from the US Federal Reserve and policymakers in Japan, Australia, New Zealand and elsewhere as insufficient given the pathogen’s breakneck spread across the world, forcing many nations into lockdowns.
SURPLUS: A Reuters survey published in January showed the market had been expecting a deficit of 160,000 tonnes, a fraction of global demand estimated at about 24 million tonnes this year.
Analysts say their numbers will be reviewed, but not until the damage to growth and demand can be gauged accurately.
STOCKS: Latest data shows stocks of copper in LME warehouses jumped 40,600 tonnes to 220,325 tonnes. Deliveries were mainly to warehouses in South Korea and Taiwan.
COSTS: Analysts at Citi expect copper prices to fall to $US5,000 a tonne in the near term, partly because falling oil prices are cutting output costs. For miners paying costs and wages in other currencies and selling their products in dollars, the boost to earnings from a stronger dollar also allows them to keep producing.
“The brunt of global short copper positioning and physical looseness is expected to impact the copper market over the coming month as involuntary supply chain stocking ends,” Citi said, adding that it expects “Chinese and discretionary short copper positioning” to rise to 2015/16 levels, three times the current short.
Copper prices hit a seven-and-a-half-year low at $US4,318 a tonne in January 2016.
DOLLAR: A rising US currency also makes US dollar-denominated commodities more expensive for holders of other currencies, potentially subduing demand.
OTHER METALS: Prices of aluminium, zinc, lead, tin and nickel dropped to their lowest since 2016.
Aluminium ended down 1.4 per cent at $US1,651.5 a tonne, zinc slipped 3.7 per cent to $US1,871, lead lost 6.1 per cent to $US1,619, tin retreated 6.7 per cent to $US14,275 and nickel slid 1.3 per cent to $US11,780.