MW: Copper sinks to six-year low on China demand woes
Metals prices dropped across the board on Tuesday, with copper sliding to a more-than-six-year low on concerns over future demand from China and gold futures giving back their gains from a day earlier.
High-grade copper for September delivery HGU5, -2.05% lost 4.9 cents, or 2.1%, to $2.272 a pound on Comex, on track for its lowest settlement price since July 2009.
“Concerns that China’s stock market rout could destabilize its economy in transition and impact resource demand continues to drag on commodities ... particularly copper which has broken down to its lowest level since 2009,” said Colin Cieszynski, chief market strategist at CMC Markets, in a note.
The Shanghai Composite Index SHCOMP, -6.15% tumbled 6.2% Tuesday, despite signals of a housing recovery and the Chinese central bank’s steps to stem capital outflow.
Copper prices had shaved off 1.3% Monday on worries that China’s recent devaluation of the yuan will slow down the country’s imports of the industrial metal.
Like many other commodities, copper is traded in dollars, so a stronger greenback against the yuan means the metal gets more expensive for Chinese buyers.
“While speculation continues regarding the timing, rationale, and prognosis for further depreciation, macroeconomic data out of China are weak and will continue the pressure towards yuan devaluation,” analysts from Barclays said in a note on Monday.
But they reiterated their call that China’s copper consumption will increase year-over-year in 2015, based on a belief that the world’s second-largest economy will stabilize in the second half of the year via stimulus measures.
“However, the deterioration in the Chinese economy may continue, and the risk of a Chinese hard landing appears to be growing, not declining, which would undermine our assumption [for copper],” they added.
U.S. data released Tuesday, however, showed a glimmer of hope for copper demand, with construction of new U.S. homes up in July at the fastest pace since the Great Recession.
Meanwhile, gold for December delivery GCZ5, -0.58% declined $7, or 0.6%, to $1,111.40 an ounce after rising $5.70 on Monday.
Still, Simona Gambarini, commodities economist at Capital Economics, said demand for gold is likely to pick up in the second half of the year as central banks “continue to diversify away from the U.S. dollar.”
That expectations helps “underpin our forecast that the gold price will reach $1,200 per ounce by the end of 2015,” she said in a note.
Also on Comex, September silver SIU5, -3.65% dropped 56.3 cents, or 3.7%, to $14.73 an ounce, taking a hit as both a precious and industrial metal. Palladium for the same month PAU5, -3.46% shaved off $17.95, or 2.9%, to $595.90 an ounce, while October platinum PLV5, -1.61% gave up $12.50, or 1.3%, to $988.20 an ounce.
