On Monday copper futures declined for the eight sessions in a row wiping out a supply-cut rally sparked by top producers Glencore and Freeport McMoRan at the start of the month.
On the Comex market in New York copper for delivery in December sagged more than 2% to a session low of $2.2320 or $4,920 a tonne– a more than six-year low – before recovering slightly in afternoon trade. The red metal’s now down some 21% year to date after a 16% fall in 2014.
Copper’s latest leg down came after data showed earnings by industrial companies in China, responsible for 45% of world copper consumption, tumbled by $24.6 billion or nearly 9% from a year earlier, with the largest drops in producers of coal, oil and metals. It was the biggest decline since 2011 when the Chinese National Bureau of Statistics first started to gather the data.
The world’s third largest copper miner Glencore’s (LON:GLEN) stock was crushed falling by more than 30% in London to trade at a record low. The $21 billion company is now worth less than a fifth of its value since May 2011 when its shares were first publicly floated. The Swiss mining and trading giant relies on copper for 38% of its earnings (vs some 20% at BHP Billiton and only half that at Rio Tinto) so it has a lot riding on the outlook for the red metal.
Anglo American (LON:AAL) shares slid 10% in New York bringing year to date declines to more than 53%. Anglo American and Glencore were the subject of a devastating research note by investment bank Investec in London which argued that due to unsustainable debt loads “if major commodity prices remain at current levels, our analysis implies that, in the absence of substantial restructuring, nearly all the equity value of both Glencore and Anglo American could evaporate.”
Freeport-McMoRan (NYSE:FCX), which vies with Chile’s state-owned Codelco as the world number one copper miner in terms of output and is also a substantial gold producer, was trading 10.1% down in early-afternoon dealings with more than 36 million shares in the owner of the giant Grasberg mine in Indonesia exchanging hands. After a brief rally earlier this month evaporated, the Phoenix Arizona based company is now down 61% since the start of the year.
Softening demand, future supply growth and warehouse stocks can’t explain the depth of today’s bear market
Freeport announced a month ago it is cutting in half output at is El Abra mine in Chile and idling two US mines and predicted lower output Grasberg due to weather patterns. That was followed by Glencore suspended mining in the Democratic Republic of Congo and Zambia, in a move that it says will take 400,000 tonnes out of the market.
Shares in world number one BHP Billiton (NYSE:BHP) fell more than 5% in New York, bringing its losses over the past three months to 29%. The Melbourne-based company which relies on oil and iron ore for the bulk of its earnings is down 49.3% over the last year with its market worth falling below $100 billion again on Tuesday. BHP peaked at a market cap of $280 billion in 2011.
The world’s second largest miner based on revenue Rio Tinto (NYSE:RIO) which is less dependent on copper than Glencore or BHP dropped 4.5% in New. The Anglo-Australian giant is worth $62 billion in New York. The Melbourne-HQed firm has outperformed its peers, limiting year-to-date declines to 30%, as it slashes costs and benefits from a relatively strong iron ore price, responsible for the vast majority of its earnings.
$21 billion Southern Copper Corp (NYSE:SCCO) managed to limit losses to 3.6% while investors in fellow South American copper producer Antofagasta’s (LON:ANTO) were less forgiving, pushing the stock down 4.4% in New York.
American Depositary Receipts of Vale (NYSE:VALE) trading in New York declined more than 8% bringing the year to date market value decline at the Brazilian company, the globe’s top iron ore and nickel miner, to 54%. Vale was also a victim of other Glencore news – the Swiss company announced its had sold its Araguaia nickel mine in Brazil for a fire-sale price of just $8 million after spending nearly ten times that amount advancing the project.
Last week Goldman Sachs predicted the slump in the copper price could last years due to the slowdown in China and that prices will probably drop to $4,800 a metric ton by the end of December and $4,500 at the end of next year as the market suffers from oversupply of 530,000 tonnes next year 2016 rising through 2019 to reach 657,000 tonnes oversupply.
Others are less bearish with Citigroup predicting production cuts and mine disruptions will send the market back into deficit in 2016. According to Bloomberg Citigroup analysts are predicting mine output this year will total 18.9 million tonnes leading to small primary surplus. But the market will return to a deficit of 284,000 tonnes next year and stay in deficit – albeit a shrinking one – through 2019. The investment banks sees copper trading above $5,700 by the fourth quarter.