The latest trends in commodities show that the class of instruments as a whole is falling, with copper, nickel and the like capsizing due to the strong US dollar and an imbalanced supply and demand equation. Copper prices touched below $2 earlier in the session, and have officially fallen -23% annually, with almost half of this drop attributed to November alone. Other base metals were brought along for the ride, including nickel and zinc which dropped -5.70% and -4.30%, respectively. Unsurprisingly, crude oil did not escape the trend either and declined -2.70% last week. It is not just commodities themselves but companies invested in their mining that are being affected, with giants such as Glencore PLC, MMC and Freeport-McMoRan seeing losses as they cut production in an effort to rebalance supply and demand. While slowing production and shutting down mines may prove an effective method of coping with market conditions, others are less willing to cooperate with the strategy. Codelco, a copper miner from Chile and one of the world’s largest producers has announced it will opt to cut costs rather than production, further capitulating issues within the industry.
Last week Friday, officials in China stated that some of the world’s largest zinc producers are planning to drastically reduce their output by 500,000 metric tons into the coming year, due largely to new limits on capacity. As China is typically the global leader when it comes to consuming commodities, the issues present in zinc and copper especially increasingly complicate their economy. Many Chinese loans are collateralized by copper, even multiple loans from the same copper inventories. This threatens to lead to an increase in bad loans for Chinese financial bodies as copper continues to experience declines. However, some believe that patterns in commodities are driven mostly by sentiment in anticipation of an FOMC rate hike that is less attracted to assets like raw materials and mostly temporary. Plans in the works from policymakers in the Euro Area and Japan to expand easing measures complicate the situation, and may serve to make dollar-based commodities more expensive on the heels of the most recent US dollar rally.
Metals Lead the Charge in Commodities Slide
Market Trends - 23/11/2015