Coronavirus has copper falling to record 12-day losing streak
NEW YORK/LONDON No major commodity has felt the pain of the worsening coronavirus epidemic more deeply than copper.
The metal has tumbled for 12 straight sessions in London, the longest retreat in more than three decades of data. Since Jan. 20 when the outbreak in China entered a new phase of severity, copper has tumbled 11 per cent, making it the hardest-hit by the spreading pandemic among all the major commodities.
Copper’s slide underscores just how crucial China’s manufacturing engine has become to global commodities markets. The economic hit to the Asian nation could exceed that seen during the SARS outbreak of 2003, according to Nomura Holdings Inc. The country’s share of global base metals demand has surged to 51 per cent in the first 10 months of last year, from just 19 per cent during the SARS pandemic, based on Bloomberg Intelligence estimates.
Traders have been warning that the short-term outlook for commodities could be upended if manufacturers in China are forced to stay closed for longer while authorities fight to contain the spread of coronavirus. Now, with several major provinces extending public holidays, those fears look like they could be realized.
“From a trading perspective, it makes sense to be cautious,” Xiao Fu, head of global commodities strategy at BOCI Global Commodities, said by phone from London. “There could be pent-up demand in the latter part of the year, but I wouldn’t be surprised to see prices moderately lower over the nearer term.”
Still, there are a lot of uncertainties, and markets have a tendency to overreact.
Chile, the biggest copper-producing nation, said investors may have overestimated the impact of the coronavirus on metal demand, echoing other comments that the outbreak won’t change the longterm growth picture. The nation’s currency weakened as much as 1.2 per cent Thursday.
The biggest question is what will happen in the short term. Brief disruptions in the spot market could weigh on sentiment, particularly if the extended closure of end-user businesses forces producers to unload stocks.
“The delay in downstream consumers coming back to market in many provinces will likely lead to an extended build in inventory,” Colin Hamilton, managing director for commodities research at BMO Capital Markets, said in an emailed note. “Warehouse operations are also due to resume next week, though transport of material is still likely to be limited.”