Nickel and aluminium prices got a boost from news that Chinese producers have asked Beijing to buy surplus metal. Photo: Paulo Fridman
Copper prices fell on Wednesday as worries about an oversupplied market and weak demand growth from top consumer China were reinforced by a stronger dollar.
BlackRock, the world's largest money manager, said the commodity selloff has room to run amid weak Chinese demand and a stronger dollar. Speculation the Federal Reserve is set to raise US interest rates next month has boosted the greenback and made raw materials more expensive for buyers using other currencies.
"Virtually every producer, consumer, mother and child is bearish on copper in China," Eric Zuccarelli, an independent copper trader in New York, said in a telephone interview. "Their economy has slowed down visibly enough for it to have an impact across the investor sector."
Benchmark copper on the London Metal Exchange ended down 1.3 per cent at $US4549 a tonne. The metal used in power and construction plunged to $US4443.50 on Monday, its lowest in more than six years.
A higher US currency makes dollar-denominated commodities more expensive for non-US firms, a relationship used by funds to buy or sell copper.
An economic and manufacturing slowdown in China, which accounts for about half of global copper consumption estimated at around 23 million tonnes, has seen demand growth rates slide this year.
"The other problem is an unwillingness by producers, even junior producers, to cut output," said Oliver Fry, a portfolio manager at Ebullio Capital Management. "Producers are streamlining production and cutting costs rather than cutting output."
Analysts estimate about 20 per cent of copper output is loss-making because producers expecting prices to bounce are unwilling to cut, preferring instead to cut costs.
"The general absence of the US for the Thanksgiving holiday at the end of the week could well give some of the very bearish Chinese funds the excuse to sell into the market once more," Malcolm Freeman, a director of West Malling, England- based brokerage Kingdom Futures, said in an emailed note.
Traders also say Chinese consumers are reluctant to commit to long-term contracts despite Chile's Codelco, the world's top copper producer, slashing its 2016 premium to China for refined metal by more than a quarter to a three-year low of $US98 a tonne.
Premiums are surcharges paid over the LME cash price for spot physical metal.