Commodity contagion: it's not just crude
The plunge in crude prices is spreading to the metals market, as copper tumbled amid speculation that demand for raw materials won’t be enough to eliminate a supply glut. China is the world’s biggest consumer of the industrial metal.
“Oversupply and falling demand are dragging down commodities beyond oil,” said Ayako Sera, market strategist at Sumitomo Mitsui Trust Bank Ltd. in Tokyo, which oversees $325 billion. “There are a lot of uncertainties and it’s hard to see a reversal in sentiment for the time being. As an investor it’s hard to proactively take on risk at the moment.”
Copper for delivery in three months on the London Metal Exchange dropped as much as 8.7% to $5,353.25 a metric ton, the lowest intraday price since July 2009. Nickel slid 3.9% and lead fell 3.4% to the lowest in more than two years.
Citigroup Inc. cut its iron ore and coal forecasts as supply costs fall, a sign the energy rout is feeding through to other commodities.
“There is a broad-based risk-off sentiment in financial markets,” Jens Naervig Pedersen, a commodities analyst at Danske Bank A/S, said by e-mail from Copenhagen today. “This is highlighted by the set-back in the copper price and weak performance in equity markets.”
More than five shares declined for every one that advanced in Stoxx 600, with trading volumes 36% greater than the 30-day average, according to data compiled by Bloomberg.
A gauge of basic-resource companies lost the most among 19 industry groups in the broader gauge, posting the biggest decline since November 2011. Anglo American Plc fell 9.5 percent, and Glencore Plc slid 12% to a record.
Miners and metal producers led an increase in the cost of insuring European corporate debt, with credit-default swaps on Glencore rising 9.5 basis points to an almost nine-month high of 171 basis points, and contracts on Anglo American climbing 10 basis points to 180, the highest since March.
Tesla Motors Inc. declined 8 percent in early New York trading after saying China sales were unexpectedly weak in the fourth quarter.
The MSCI Emerging Markets Index slid 0.5%. Mining companies dragged South Africa’s benchmark 2% lower, the biggest drop among major emerging markets.
Jiangxi Copper Co., China’s largest producer of the industrial commodity, sank 5.9%, the most since May 2012, and KGHM Polska Miedz SA, Poland’s sole copper producer, tumbled 6.5 percent, this biggest drop since July 2013 on a closing basis. Brazil’s Vale SA, the largest exporter of steel-making iron ore, slid 4%.