Copper slipped on Monday alongside Chinese equities on news the country’s manufacturing sector shrank at the fastest in more than three years, reinforcing fears of weaker demand in the top consumer of industrial metals.
Benchmark copper on the London Metal Exchange ended down $US4560 a tonne from $US4561 at the close on Friday. The metal used in power and construction earlier touched a session low of $US4496.50.
China’s official Purchasing Managers’ Index (PMI) fell to 49.4 in January from 49.7 in December. It is the weakest reading since August 2012 and marks the sixth consecutive month of contraction. The Shanghai Composite Index eased 1.8 per cent, while the CSI300 index of the largest listed companies in Shanghai and Shenzhen lost 1.5 per cent.
“After the Chinese PMI data it’s not surprising to see copper and other industrial metals and China equities under pressure,” said Commerzbank analyst Eugen Weinberg. “The market is very much driven by sentiment at the moment, but we are likely to see more supply cuts this year, many mines are operating at unprofitable levels.”
Weinberg also sees as a positive China’s imports of refined copper surging 34.4 per cent in December from a year ago to a record 423,181 tonnes.
But others doubt demand is stronger and instead suggest fears of further yuan devaluations have convinced Chinese consumers and traders to stockpile the metal. A weaker yuan makes commodities priced in dollars more expensive for local Chinese firms. China’s week-long Lunar New Year holiday which starts on February 8 is expected to subdue activity in metals markets.
The slump in commodity prices continues to pressure the global majors. BHP Billiton, the world’s biggest mining company, has had its credit rating cut at Standard & Poor’s.
The rating was lowered to A from A+ to reflect changes in commodity forecasts and “very challenging market conditions and increased demand uncertainty over the coming years”, S&P said in a statement on Monday. Ratings for the Melbourne-based miner may be lowered one notch further after it releases earnings on February 23, S&P said.
Industrial metals also came under pressure overnight after data from the Institute for Supply Management said its index of US factory activity showed a fourth straight month of contraction, traders said.
Three-month aluminium was untraded at the close, but bid up at $US1521, zinc traded up 1.5 per cent to $US1648 and lead gained 0.8 per cent to $US1732 a tonne.
Tin was down 0.5 per cent at $US14,800 a tonne. The soldering metal is expected to come under further pressure after China’s largest tin producer, Yunnan Tin , said the government had not yet decided on a plan to stockpile tin.
Nickel fell 2.3 per cent to $US8460 a tonne. Traders said Russia’s Norilsk Nickel producing more of the stainless steel ingredient was weighing on prices.
“During times of commodity price weakness it is typical that mining companies increase production in order to lower unit costs,” Investec analysts said in a note. “Such behaviour serves to exacerbate the oversupply, thus delaying any recovery in metal prices. We are now in the “dog eat dog” phase where only fittest will survive.”