RE: Phelps Dodge won't increase moly outputMetals prices tank as China demand seen slowing
16 April 2005
SYDNEY: Cracks may be appearing in industrial commodities markets that have boomed on China's burning need for imported copper, aluminium and other raw materials.
Beijing has been trying since last year to rein in unchecked economic growth by making it tougher to borrow money, a move that has some bracing for a slowdown in China's demand for commodities.
Mining companies that have made billions of dollars in profits on high metals prices are far from calling an end to the good times.
But in the last two days copper has lost 7 per cent of its value, while zinc, lead and aluminium have shed as much as 5 per cent.
Underscoring how quickly markets can swing, just this week copper raced to its highest price ever on the London Metal Exchange. Other metals too were trading at multi-year highs.
"The peak in prices has come and gone," said Commonwealth Bank of Australia commodities specialist David Thurtell.
Commodities markets historically run in cycles.
"I think people are beginning to say, 'Let's calm down a bit,'" said Fuminori Ogata, commodities analyst for futures broker Himawari CX, Inc in Tokyo.
CHINA IMPORTS DOWN
Chinese customs data next week is likely to show China's refined copper imports fell by much as 9 per cent in March, while exports of aluminium grew.
"One year after the tightening began, China is saving more and consuming less," Goldman Sachs said in a report.
The impact of falling metals prices on commodities-sensitive economies has been swift.
The Australian market tumbled to a four-month low after investors dumped shares in diversified miners and metals processors BHP Billiton and Rio Tinto.
The Australian dollar also came under pressure from the falling metals prices, losing 0.7 per cent this week to below 77 US cents.
Thanks to strong metals demand, BHP Billiton earned $US2.8 billion ($NZ3.9 billion) in the last half-year period. Rio saw a profit of $1.23 billion.
"Given that the resources sector has been running with such strength the last three to six months, it's no surprise to see profit taking and reassessment being done in this sector," said Jamie Spiteri of Shaw Stockbroking in Sydney.
The last time copper prices tanked in a big way, BHP was forced in 1999 to idle its entire US copper mining and smelting division at a cost of $1.4 billion and 2630 jobs.
Shares in Canada, home to some of the world's deepest iron ore and nickel mines, were also clobbered as metals nosedived, driving the Canadian dollar to a one-month low along the way.
Producers too, are bracing for less demand.
Timothy Snider, president of world number two copper producer Phelps Dodge, said on Thursday copper prices should moderate in the second half as more metal hits the market.
Some of the strength in metals markets is due to a weakening of the US dollar, which encourages speculators outside the US to buy up material with fortified home currencies.
"It is cautiously said that the trend of a weakening US dollar in currency markets is near an end," said Song Won-deog, a team manager of Woori Futures Co Ltd in Seoul