Copper and iron ore prices traded wildly last week leading to fears there is a bust rapidly looming as frantic trading by Chinese speculators destabilises some markets.
Some of the most frantic swings in prices seen for five years or more happened, especially on Friday.
As a result copper swung in near 15% trading arc on Friday – iron ore bolted higher to be up 25% over the five trading days and coal prices were up 10% according to some dealings.
But offsetting that gold and oil fell sharply in more sedate dealings.
Traders and analysts say driving much of the surge in activity isn’t the election of Donald Trump as the next US President – although that added to the volatility.
It is speculators in China plunging in and out commodities despite attempts by the Chinese government to put a lid on the surge in coal, iron ore and copper and other metal prices.
Copper and iron ore saw near record surges on Friday alone – so much so that copper prices on the London metal Exchange charged over $US6,000 a tonne for a few minutes, and fell back just as sharply.
But not all metals for example, attracted attention last week – nickel, aluminium, tin, lead and especially zinc – which have all risen sharply at one stage or more this year – were quiet compared to the madness in copper and ended lower.
Copper futures, meanwhile, saw a weekly climb of nearly 11%, which was the largest in over five years, as traders bet that policies expected to be pursued by Republican Donald Trump’s administration could feed demand for industrial metals.
LME three-month copper price peaked at $US6,025 a tonne on Friday,.They fell back to around $US5,529 a tonne to be up 11% for the week. It was the best week for the metal for five years, but LME rices remain well under the $US10,000 a tonne level hit in the wild days of 2011.
The metal has set fresh highs each day for the past 14 days during which time it has climbed $1,363 or 20.3%.
In New York, Comex December copper shed 4.2 cents, or 1.7% on Friday to settle at $US2.509 a pound, but for the week was up 11%, the biggest weekly gain since October, 2011, according to FactSet data. In fact copper peaked at more than $US2.73 a pound in New York early before selling off in the rest of the session on Friday.
But in Shanghai nickel fell 4%, ending a six-day rise, while Shanghai copper fell 1.6%.
On the LME, aluminum, zinc, nickel, tin and lead all dropped.The surge only happened in London, briefly at the opening.
On Friday, Australian ore with 62% iron content rose $5.5, or 7.4 per cent, to $79.7, according to the Steel Index, extending gains for the week to more than 25%. The rice on the Dalian Futures market surged to close over $US90 a tonne – which is impossibly high given the way prices have gone this year.
Bloomberg reported that the consensus in the market is that prices aren’t supported by fundamentals for copper.
“Global refined output will exceed demand by 420,000 tonnes next year, the biggest surplus in eight years and up from 110,000 tonnes this year, London-based researcher CRU Group said earlier this month.
“Speculators are running away with the market,” Caroline Bain, an analyst at Capital Economics Ltd. in London, said by phone. “There may not be a crash tomorrow, but we expect prices to drop in the coming weeks.”
As the renminbi has weakened retail investors in China have been looking for US dollar-linked assets to buy.
Copper has been one choice and steelmaking ingredient iron ore another. Coal had been a popular play until policymakers introduced curbs to cool prices and speculative buying over the past couple of weeks.
Marketwatch reported “We saw a lot of Chinese buying coming through — it was orderly until then and now it’s become a little bit disorderly,” said Michael Widmer, an analyst at Bank of America Merrill Lynch. “Views over a potential fiscal stimulus in the US just brought more buyers into the market and drove prices still higher.”
But analysts at Commerzbank voiced caution over the rally, saying there were still risks around China’s credit-driven growth model as non-performing loans rise in the country, the world’s largest consumer of copper.
“Metal prices still appear to be supported by the euphoria exhibited by market participants in the wake of Trump’s election victory, a reaction we find somewhat inexplicable,” they said.
“Even this momentum will run out sooner or later, however. As soon as the dust has settled, market participants are likely to start focusing on the fundamental data relevant to metals again.”
