Producers of copper, iron ore, steel and aluminum are trading higher following pledges from China's top steelmaking province to further cut production capacity.
Shanghai steel futures jumped 7% overnight to their highest in nearly three weeks, with iron ore and coking coal climbing ~8%, on reports that Hebei province, which accounts for 25% of China's total steel output, plans to more than double this year's cut to 31.86M metric tons of steel and ironmaking capacity this year.
Also, London copper rose 3% to $5,755/metric tons, extending YTD gains to nearly 5%, on news that China’s producer prices had surged in December.
The Associated Press has called the U.S. presidential race for Donald Trump, which would be the culmination of a stunning rebuke to the political establishment and sent shockwaves through financial markets.
That coincided with calls for Trump in Pennsylvania and (just now) Wisconsin -- two of the very last necessities for a path to victory for Hillary Clinton, who was heavily favored in national and electoral college forecasts as late as today.
Those calls put Trump to 276 electoral votes of a needed 270.
Compared with previous presidential elections, futures were far jumpier throughout the night based on small fluctuations in early precinct returns. But they took a turn down (and then still further down) as electoral votes piled up for Trump.
Futures trading that was thought to be halted overnight is well under way. S&P e-Mini futures -3.4%. Dow futures -2.8%. Nasdaq -3.9%.
The euro is up 1.6% against the dollar, which is down 2.5% against yen and down 1.4% against the Swiss franc. Sterling is up 0.7% against the dollar.
Gold is up 3.2% to $1,315.80. Silver +2.3% to $18.782. Even copper +1.1% to $2.408.
Hillary Clinton has placed a concession phone call to Trump, NBC reports.
Freeport McMoRan (FCX +12.1%) soars ~12% in early trade to lead the S&P 500, as copper futures and other base metals surge.
The LME’s three-month copper contract was up 1.4% at $4,686/metric ton after hitting a two-week high earlier in the session at $4,701, maintaining its price momentum after closing above $4,600/ton last week for the first time in almost two weeks.
Positive trading sentiment on copper was upheld by China’s announcement that it will reduce deed and business taxes for home buyers in a bid to speed up home sales and reduce the glut on the property market; weak Chinese property sales have been bad for copper prices, as the sector accounts for most of the demand for the metal.
Meanwhile, Bloomberg's David Fickling thinks BHP Billiton (BHP +5.9%) ought to buy FCX: BHP's copper output would more than double overnight and control of all three of the world's biggest copper pits - Escondida, Grasberg and Morenci - while a deal also would make sense for FCX, "whose debts are dragging it dangerously close to the plughole."
The dollar (UUP -0.6%) is retreating again today, continuing a move which began at the start of the week and picked up steam yesterday morning when New York Fed President Bill Dudley called out the greenback's strength as a cause for concern.
Not coincidentally, commodity stocks are bouncing off of sharply discounted levels, with names like Freeport McMoRan, Vale, and Cemex up double digit percentages over the last day-plus.
Turning to countries, Brazil (EWZ +3.7%) is on a two-day tear of about 6%, and Canada (EWC +2%) of just under 3%. In its first chance to respond to Dudley's remarks, Australia (EWA +2.1%) gained 2.1% overnight.
Copper prices hit a six-year low for the fifth time in a week in London, -1.9%, amid worries about China’s economy, and are now down nearly 9% YTD; aluminum, lead, nickel and zinc all fell more than 1%.
Long-dated “copper prices adjusted for producer country FX are mostly unchanged, which underscores the macro nature of the recent declines,” according to Goldman Sachs.
"No lasting price recovery appears possible at present, neither on the metal markets nor on the commodities markets in general," Commerzbank says.
The move is good news for Glencore's stock price too, with shares up more than 11% in London and more than doubling since reaching a record low last week.
Glencore's reduced operations in Australia, Kazakhstan and South America will reduce global zinc supply by 500K metric tons/year, not a trivial amount in a 14.5M tons/year global market.
Zinc has, along with nearly all commodities, been under pressure from oversupply, sliding to a five-year low of $1,601.50/ton on Sept. 28.
Further destocking of zinc and a more visible recovery in China’s industrial activities will be needed to propel a more sustained price rally, says Xiao Fu, head of commodity markets strategy at BOCI Global Commodities.
Industrial metals continue their recent climb, with aluminum, zinc and lead trying to play catch-up with copper, which has gained 5% this week as more miners mothball operations at loss-making mines.
Glencore's (OTCPK:GLNCY, OTCPK:GLCNF) Monday announcement that it will cut 400K metric tons of copper production over the next 18 months at two mines in the Democratic Republic of Congo and Zambia comes in the wake of closures or cutbacks at mines controlled by Freeport McMoRan (FCX +4.3%) and others; shortly after Glencore’s decision, the Chinese operator of the Baluba mine in Zambia said it was suspending operations and cutting jobs.
The closures follow a high level of production outages across the copper industry this year because of bad weather and labor disputes, with the combined effect helping to tighten the difference between supply and demand.
The number of requests to withdraw copper from London Metal Exchange warehouses relative to the level of global inventories fell this week to the lowest since March 2013, signaling the meltdown sweeping through commodity markets could get even worse.
Commodity investors see it as a bad omen because copper historically has been used as an indicator for what is to come in raw materials and as a gauge of global expansion.
"Concerns about copper prices and Chinese demand for copper [are] reason to be worried more generally about demand for industrial metals and a wide variety of other commodities as well," says Natixis head of commodity research Nic Brown.
Comex copper futures recently -1.7% to $2.433/lb., heading for the biggest loss in two weeks.
A series of stimulus programs from China in recent months has helped convince investors that the world’s largest copper consumer is serious about steadying its economic slowdown; at the same time, disruptions in copper mining and supplies have sparked a belief that the market may end the year with global production and demand nearly balanced, rather than with a supply surplus.
Glencore (OTCPK:GLCNF, ]]GLNCY]]), the world's no. 3 copper miner, reported its Q1 copper production fell 9% Y/Y, partly due to a planned shutdown for maintenance at its Collahuasi mine in Chile; disruptions at operations owned by BHP Billiton (NYSE:BHP) and Freeport McMoRan (NYSE:FCX) also have fueled speculation that a global surplus will shrink this year.
Copper prices are on track for their biggest gains since September on speculation that China would use stimulus measures to jump-start its economy and boost demand for the metal.
Rising oil prices and Chinese stimulus speculation “have changed the focus to the upside and the short-covering has done the rest,” says Saxo Bank's Ole Hansen, adding that “energy is such a big and important part of the commodity sector, and the somewhat improved sentiment there also helps other” raw materials; aluminum and nickel also are rising to multi-week highs.
"We’re in this perverse world where bad news is good news,” says BNP Paribas analyst Stephen Briggs, and "a lot of people are thinking China’s going to join the rest of the world and lower interest rates or [offer] some kind of monetary response."
Raw materials companies are off to a strong start today: FCX +5.8%, BHP +3.9%, RIO +2.4%, VALE +3.9%, SCCO +3.4%.
Copper prices extended their rout today, with the Comex March contract tumbling 3% to just above $2.50/lb. and the lowest close since July 2009.
Much of copper’s recent slide has been ascribed to a worsening outlook for the global economy, and the dollar's push to an 11-year high against the euro following the ECB's plans for a major bond-buying program exacerbated the move today.
"The primary reason for the changes to our forecasts is cost deflation," says the team, noting "actual and anticipated U.S. dollar strength, cheaper energy and other input costs and our expectation of an improvement in mining productivity."
The bank cut its expectations for metals and mined raw materials over the next three years by between 10 and 20 percent.
Bearish on copper (NYSEARCA:JJC) even after a 20% decline over the last year, Goldman cuts its forecast for this year to $5,542 per metric ton from $6,400.
Facing a sustained period of oversupply, iron ore is now seen averaging $66 per ton vs. $80 previously. Gold's forecast is trimmed to $1,089 per ounce from $1,200.
Freeport McMoRan (FCX -10.8%) sinks to a 52-week low as copper prices fall 4.5% to collapse to 2009 levels, though it is off overnight lows after prices were down nearly 9% at one point in London.
Other big global miners also are sharply lower: SCCO -7.3%, RIO -2.5%, BHP -4.4%, VALE -3.8%, CLF -5.8%.
Concerns over a supply glut and slowing consumption in China have weighed on copper prices in recent months; copper is often seen as an omen for the global economy because it is used in a wide array of construction and manufacturing activities, so today's precipitous drop explains much of the weakness in global equity markets.
The iPath Dow Jones UBS Copper Subindex Total Return ETN (NYSEARCA:JJC) is trading so heavily that nearly 60% of the average full-day volume traded in the first 10 minutes this morning.
El Niño has a reputation for triggering sharp run-ups for prices in markets as diverse as nickel, coffee and soybeans, and commodities investors, traders and analysts are bracing for impact at a time when global supplies of many raw materials already are stretched.
Global food prices - which at the start of 2014 were expected to be largely flat this year - could easily climb 15% to record highs in as a little as three months after an El Niño occurs, says World Bank economist James Baffes.
But Société Générale analysts say it is miners, not farmers, who have the most to worry about; since 1991, nickel prices rose the most (13.9%) during El Niño years among commodities the bank tracks.