Industrial metals sent its worst year since 2008. Copper, aluminum, zinc, nickel, lead, tin – all recorded annual declines in nickel as this amounts to 42% – the unsatisfactory performance index in London Metal Exchange (LMEX) . Decliners meter is 24 percent. It would hardly be an exaggeration to say that the culprit is China.
Cuts in production and signs of improving demand from Celestial Empire came too late to cope with falling demand and excess supply.
The price of copper decreased the third consecutive year, the longest decline since 1998 and is explained by the saturation of the market resulting from weak demand from China, which is the largest consumer of metals. Although producers in number two economy promised to reduce volumes, investors remained cautious, divided by slowing global economic growth and the prospect of continuous surpluses in metals.
“There are many questions about China, many unknown and will enter the year in which metal will be the preferred asset class,” said Bill O’Neill, of Logic Advisors, based in New Jersey.
Metals started to decline three years ago and the decline accelerated steadily since then, said Bloomberg. Glencore and Freeport-McMoRan are among mining companies that have reduced production of copper and other metals, partly trying to revive the market prices.
“It’s all about sentiment,” said Kasper in November Bargering, an analyst at ABN Amro Bank NV in Amsterdam. “Bad signals from China a direct impact on the direction of prices of base metals and any good news is ignored.” To this is added the appreciation of the dollar on expectations the US to raise interest rates, expensive metals assessed in the greenback for buyers worldwide. “Speculators withdraw money and invest in assets that are doing better compared to base metals,” says Robin Bar, an analyst at Societe Generale SA in London.
In July, the investment bank Goldman Sachs said that copper enters the biggest bear market cycle for the last seven years. Then analysts lowered significantly the long-term goals for the metal used in industry.
In 2011, as the price of the red metal soared to historic highs of over $ 10 000 per tonne amid a surge in demand from China.
The movement of the price of copper has long been considered a measure of the state of the global economy. The industrial metal is used to make almost everything – from cars to houses. Copper is a commodity that is exposed to the many macroeconomic headwinds, such as the mismatch of monetary policy in different parts of the world, deflation and declining demand from China, cited by Goldman Sachs.
However, there are optimists: “We are cautiously optimistic that with the shrinking supply and steady growth in demand could begin recovery in the copper price,” said Caroline Bain of Capital Economics, said on CNBC. Bain predicts that at the end of 2016 copper prices will rise to 6,000 dollars per tonne from around 4750 dollars per ton today.
Slowing economic growth in China hit the real estate market in the country and therefore accumulate large stocks of steel and this will likely continue to weigh on the price of iron ore, which is trading around $ 40 per tonne of approximately 70 dollars per tonne in January. National Australia Bank, UBS and Westpac have bad forecasts for raw materials, which in turn will affect the Australian economy and currency.