A fall in the price of copper has raised further concerns that 2015 will be a bad year for the global economy, with demand for oil, iron ore and coal already low.
Copper is widely seen as a good indicator of the global economic outlook. It is a staple material in the manufacture of electronic goods, electric generators and motors. It is also used in motor vehicle radiators, air-conditioners and home heating systems, as well as water pipes.
Speculators have bet on a continued fall in copper prices, with copper futures plunging on the London Metal Exchange as significant Asia sell-offs on the back of growth concerns continue in London trading.
The LME’s three-month copper contract was down 5.3 per cent at $US5,548.00 a metric ton at Wednesday’s PM kerb close — having hit a five-and-a-half-year low at $US5,353.25.
“Copper prices reflect in part oversupply, but also slower demand particularly from the likes of China,” said Jasper Lawler, a market analyst at CMC Markets.
China is the largest consumer of the red metal and prices tend to mirror the country’s economic trajectory. When it appears to be cooling, demand for copper falls and prices drop.
The World Bank’s downgrade of global growth in 2015 to three per cent from 3.4 per cent and its highlighting of China’s “disorderly slowdown,” added to the nerves of a market that was already on edge in the wake of copper’s move below the important $US6,000 level. This breach helped the market to chase prices lower.
Copper didn’t find much relief in a softer US dollar, as the greenback gave up gains on the back of weaker-than-expected US retail sales data.
US retail sales dropped 0.9 per cent month-on-month in December — more than economists’ expectations of 0.2 per cent and the biggest monthly fall since January 2014. The US dollar is trading down against a range of currencies.
For a market still trying to find its floor, there may be lower to go.
“We’ve broken all manner of support levels now … there’s not a lot of support until we get to the (important) psychological $US5,000 level,” said Robin Bhar, a metal analyst at Societe Generale.
Most of the base metals were left hurting after heavy sell-offs.
Aluminium closed down 1.0 per cent at $US1,774.00 a ton, zinc closed 2.1 per cent lower at $US2,037.00 a ton, nickel dropped 2.3 per cent to $US14,310.00 a ton, lead ended the session 3.9 per cent lower at $US1,758.00 a ton and tin closed down 0.8 per cent at $US19,375.00 a ton.