Weekly Market Outlook

Copper on Worst Run in Two Years as Barclays Sees Deterioration

Copper is heading for its longest losing streak in two years amid concern a glut will persist as miners press on with cost cuts and banks such as Barclays Plc see more losses.

The metal sank as much 1.2 percent to $4,778.50 a metric ton, the lowest in more than a month, and traded at $4,818 by 10:10 a.m. on the London Metal Exchange. Prices fell for a seventh straight day, poised for the longest run of declines since February 2014.

“Over the past week, copper prices have converged with our view that the recent rally was unsustainable as it was built on transient technical factors and poor fundamentals,” Barclays Plc said in a note to investors Monday. “In the second quarter, we see copper continuing to weaken, as the seasonal uptick in Chinese economic activity is not enough to offset strong inventory levels and a worrisome medium-term outlook.”

1200x-1While prices capped a quarterly gain last week for the first time in almost two years after some producers including Glencore Plc reined in supply, the head of Chile’s Codelco has warned there are few signs of improving demand and it doesn’t see a recovery starting until 2018. Barclays said prices would drop this quarter, averaging $4,520 a ton. Weaker currencies in producer nations and lower oil prices are helping suppliers trim costs, curbing the need to make output cuts, according to Societe Generale SA.

“On the ground level, the mines and the producers are not under the pressure to cut supply that one might think they’d be under,” said Mark Keenan, Societe Generale’s head of commodities research for Asia in Singapore. “Demand growth is going to be subdued relative to what we’ve been historically used to, as a function of the slowdown in China.”

While inventories in LME sheds have dropped this year, they’ve surged in China. Stockpiles in LME-tracked warehouses stood at 143,400 tons last week, the lowest since August 2014 and 39 percent down this year. Holdings monitored by the Shanghai Futures Exchange soared to a record last month, and Bloomberg Intelligence estimates the amount in bonded warehouses is now the highest in seven months.

Codelco Chief Executive Officer Nelson Pizarro said last week the market is susceptible to a pullback. The recent rally is very vulnerable to losing steam as a strong structural reason doesn’t appear to be there, Pizarro said in an interview with Bloomberg News.

In other metals:

  • Zinc fell 0.9 percent, while lead declined 0.5 percent. Aluminum gained.