Metal fatigue: More downgrades eyed


Metal prices crumbled on Monday thanks to a toxic combination of the prospect of poor Chinese demand and a stronger U.S. dollar.

Copper prices fell as much as 3 percent to a fresh six-year low of $4,467 per ton before recovering to trade closer to $4,480, while London nickel slid as much as 6 percent to its lowest since 2003.

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"The strength in the dollar has been an ominous start to the week, we have seen climbs against the euro and sterling, and seeing that carry over into the commodity complex," Michael Gurka, founder and president at BruinHill Partners, told CNBC.

A stronger dollar is generally bad news for commodity prices, as most commodities are priced in dollars. Nickel prices fell as far as $8,230 a ton and was last down 5 percent at $8,300 on the London Metal Exchange (LME). Lead prices touched their lowest since 2010, while aluminium turned as low as $1,435, a low reached on Friday and the weakest since 2009. Silver prices were also under pressure, falling over 1 percent to $14 per ounce.

London-listed miners came under renewed selling pressure as metal prices fell, with the likes of Glencore, Antofagasta and Anglo American all trading over 1 percent lower at the bottom of the FTSE 100.

"I think that with the shortened week in the U.S. (due to the Thanksgiving holiday), one of the signals I am watching for is the lack of liquidity in these commodity markets, which means we probably won't see any bounce, specifically with copper and silver. They have been extremely bearish and there is tons of room now down below these markets, now we have gotten through these (multi-year low) levels," he said.

Employees work on an offshore oil platform in the Persian Gulf, off of Saudi Arabia.
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Concerns on the outlook for growth of the Chinese economy -- and its demand for commodities -- has led to persistent commodity price weakness for most of this year, with price forecasts for the sector seeing continuous downgrades.

The latest data from the LME released last week showed money managers have been cutting their net-long positions, or expectations that prices will rise, while U.S. investors have upped their net-short positions or bets on further price weakness in copper, according to head of commodities research at Capital Economics, Julian Jessop.

Renaissance Capital became the latest broker to cut its commodity price outlook on Monday, after it reduced its calendar year 2016 aluminium forecast as well as a number of other precious and industrial metals by 2016 to $1,600 per ton, which is still way above current levels of around $1,435.

Oil prices staged a recovery on Monday after the Saudi Arabian government, the largest oil producer within oil cartel OPEC, said they were ready to cooperate in maintaining stable markets.

U.S. West Texas Intermediate (WTI) crude futures were down 84 cents a barrel at $41.56 a barrel by 13: 30 London time, having fallen by more than 3 percent earlier on a stronger dollar.

"I see more danger of weakness in non-oil commodities. However, the foreign exchange market effect will be broad-brush as the dollar benefits and commodity-sensitive currencies are under pressure again across the board," said global macro strategist at Societe Generale, Kit Juckes in a note to clients published on Monday.