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 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.
The WSJ shines a light onto "shadow warehouses," a hidden system of facilities that store tens of millions of tons of aluminum, copper, nickel and zinc across the globe for banks, hedge funds and commodity merchants.
The warehouses operate outside the London Metal Exchange's system, are unregulated, and don't provide details of their holdings. As a result, it's unclear how much metal is held in the shadow system. This lack of visibility could cause major price swings.
The WSJ article follows allegations that warehousing companies have artificially boosted the price of metals, particularly aluminum.
Companies that operate metals warehouses include Goldman Sachs (GS), Glencore Xstrata (GLCNF) and JPMorgan (JPM), although the latter is looking to sell its commodities unit.