A wave of stop-loss selling pushed London copper to 5-1/2 year lows on Wednesday, while Shanghai prices hit their ‘limit down’ after an oil rout slammed investment in commodities.
London copper spiralled more than 8 per cent at one point, echoing the recent rout in oil, as traders slashed the positions to limit losses.
But unlike oil, which has been swamped by huge oversupply, a small 2015 surplus expected in copper is already being whittled away, suggesting that buyers will pounce on low prices supporting the market, traders said. But there was no sign of that so far, they added.
“The growth picture is worse now than it was six months ago. And given that’s Europe, Japan and China, for base metals, that’s going to be a big deal,’’ said analyst Daniel Morgan of UBS in Sydney.
‘We are definitely not in GFC (Global Financial Crisis) territory, where global trade can’t be financed. Trade is still taking place in commodities, it’s just at lower prices...I think you’re going to see lower prices prompt opportunistic buying.’’
Three-month copper on the London Metal Exchange dived to $5,353.25, the weakest since July 2009, before trading at $5475 a tonne at 0234 GMT, still down 6.5 per cent on the day.
Prices have lost more than 11 per cent so far in January, in the longest losing streak for one year.
Fibonacci level
A break of a key Fibonacci level and options-related selling speeded up the fall, traders said.
“Some people are going to have had an amazing start or ruined their year on this move,’’ said a trader in Singapore.
“Big open interests on $5,800 and $5,700 strikes on March. If any of the shorts are in a London trading book, it will just trigger more selling when they come in.’’
Option trades
Copper traders had been nervously eyeing two big put option trades at $6,000 and $5,500 per tonne, which they feared could accelerate the market’s longest rout in years, they said this week.
The most-traded March copper contract on the Shanghai Futures Exchange fell 5 per cent, the most the bourse will allow it to drop in one day, to 41,190 yuan ($6,650) a tonne. ShFE zinc also slid 5 per cent at one point.
Growth forecast
The World Bank had on Tuesday lowered its global growth forecast for 2015 and the next year due to disappointing economic prospects in the euro zone, Japan and some major emerging economies that offset the benefit of lower oil prices.
Across other LME metals, nickel fell 2.5 per cent, zinc, lead tin dropped 1.6 per cent and aluminium fell 1.2 per cent.