SINGAPORE — Copper and zinc fell by their daily limits on Monday after a one-day suspension in Shanghai, and London metals also dropped 5 per cent as investors bet on further declines in global growth and turbulent financial markets.
London copper slid 4.9 per cent to a new three-year low of $3,590 (U.S.) a tonne, zinc lost more than 6 per cent, while lead and nickel both dropped more than 5 per cent as the heavy selling of the past two weeks continued.
“Commodity markets are very distressed and at times, drift into panic,” a metals trader in Australia said.
“If the overhang in capital market redemptions is to be believed, that distress will continue for quite some time. We won't see prices extending the straight line fall from July, but pressure will remain high,” he said, adding that it would take a year or two at least to clear bad news from the financial system.
By 0723 GMT, London Metal Exchange copper for delivery in three months was down $175 at $3,600 a tonne.
Fund selling and a flight from risk sent copper tumbling by more than 20 per cent last week, its biggest weekly fall on record, and prices have collapsed by 60 per cent since a record high in July.
But it may be a little early to write the obituary for the commodities supercycle, despite the red ink, some traders said.
“The question is whether we will see a long-term impairment in consumption. Demand is slowing, but we won't go backwards that far,” an analyst in Sydney said.
“People will still need places to live, food to eat and goods to consume. Look at nickel – very few miners are profitable at $9,000 a tonne, so either mines shut down or prices will go up.”
Nickel prices fell $600 to $9,400 and are down more than 80 per cent from a record high in May last year.
“We are seeing some declines in demand, but at the same time prices are down 60-80 per cent,” Jonathan Barratt of Commodity Broking Services said.
“Does the fall in demand justify that kind of decline? I don't think it does.”
Shanghai copper closed on Friday for one day, fell by its 4 per cent threshold to 32,540 yuan, a new three-year low, from Thursday's settlement of 33,900 yuan. The exchange ordered the closeout of over 50 per cent of the open interest in copper, cutting it to 82,000 lots.
Shanghai zinc also suspended on Friday, fell 370 yuan to its downside limit at 8,840 yuan, a new lifetime low for the contract.
China's implied copper consumption rose 5.3 per cent in September from the previous month, Reuters calculations using Chinese customs data showed. Copper demand in the first nine months of 2008 rose 4.2 per cent, while demand for zinc increased by nearly 20 per cent from the same period last year.
“Implied demand calculations in times like this are pretty meaningless. Those import orders were placed up to a year ago, and it's difficult to believe in the face of these prices that consumption is growing at these rates,” a trader in Sydney said. Copper prices in Shanghai have fallen 45 per cent since the start of September. Zinc and aluminum have also plunged to trade well below the costs of production for many Chinese producers.
“The market is stuffed full. Shanghai metals markets have been limit down day after day and that tells you that although the data suggest demand is rising, consumer inventories are bursting, and no one is buying,” the Sydney trader said.
