The ongoing fall in crude prices extended its slump to the commodities market on Wednesday as the prices of copper, a key indicator of economic growth due to its usage in power, telecom and construction, fell to a new 5-1/2 year low. The fall was spooked by the slowdown in China, the world’s largest consumer of metals and an adverse global growth forecast by the World Bank.
Prices of copper slumped by 8% intra-day on the London Metal Exchange as international funds shifted their investments to alternate asset classes amid fears that surplus stocks of the red metal will push prices further down. Prices for three months delivery fell to their lowest since July 2009 at $5,353.25 a tonne in intra-day trade, before recovering to$5,545, down 5%. The prices are expected to slide further due to increased production by copper refining companies, which will leverage on low crude prices to step up output.
While the impact in India on companies involved in copper production — Hindalco Industries, Sesa Sterlite, Hindustan Copper — may not be immediate, traders and analysts fear that a sustained fall will hit the profitability in the fourth quarter.
“There was lot of panic selling today as traders expect that with demand contracting in China and refining costs falling, 2015 could also be a surplus year for copper stocks,” said Kishore Narne, associate director — currency and commodities, Motilal Oswal. “Some traders estimate the price to fall to about $4,800 as the surplus production may be much higher than demand.”
China typically consumes 40% of the global copper output but a recent fall in a key manufacturing index has upped concerns that China’s demand for the red metal will slacken. Major global copper producers have also reduced production guidances for 2015. Rio Tinto announced a cut in its output forecast 100,000 tonnes, while BHP has reduced it by 150,000 tonnes.
The World Bank also slashed its global growth forecast estimates to 3% from the earlier 3.4%. “Given such a scenario, it is expected that a prolonged fall will imply a re-rating of earning estimates for Indian firms” said Mayuresh Joshi, vice-president, Angel Broking.