Coming after a return to risk-on assets that initially followed a FOMC that was hesitant to alter policy in October, commodities markets were wholly seen to increase with precious metals and crude oil leading the way. These two assets have been heavily shorted in recent weeks, with even base metals like copper experiencing boosts in price alongside Chinese statements of an attempted crackdown on commodity financing deals intended to add liquidity to manufacturers and industrial producers. Glencore, one of the biggest players in the mining space after its acquisition of Xstrata, spurred a short burst in prices of copper when it announced that it disclosed it would be pursuing asset sales in Chile and Australia. However, despite the potential impact inherent in a sale of this magnitude, pressure on copper prices have put into question the viability of the mining giant’s plan and copper’s price buoyancy.
One of, if not the most prolific consumers in the world is China, which has seen immense economic trouble in the past year. Accordingly, prices of materials used in production, namely commodities, were pressed downwards earlier as Chinese policymakers increase scrutiny on spending and stockpiles. Risky and irresponsible lending on collateral already used for other loans has resulted in margin calls on many companies that threaten the outlook significantly. Glencore’s tactic of placing certain copper mines on furlough and slowing production have been enough in the short-term to control prices of the metal, but the space in the market for competitors has been quickly filled and threatens copper exponentially as the days pass. These revelations are compounded by the stark oversupply in the market as well, meaning copper price bias is firmly pointed downwards. Further supply side shifts will need to accompany dropping demand in order to fully cement a floor in copper prices near-term.
Copper’s Battle for Balance
Market Trends - 12/10/2015