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Metals extend sell-off on mounting concerns over demand in China

Weakness in metals is mainly due to spillover from the decline in iron ore, analyst says.

Metals extended their biggest daily plunge this year, buffeted by signs of ample supplies of copper, and concerns over demand in China. Iron ore tumbled in Dalian, steel plummeted in Shanghai and mining shares slid to the lowest level in four months.

Three-month copper dropped 0.5% to $5,573 a metric ton on the London Metal Exchange, extending Wednesday’s 3.5% drop as stockpiles tracked by the LME jumped 25% in two days, the most since early March.

Metals have come under pressure after data this week signaled a slowdown in China’s manufacturing, with the LMEX Index of six major metals tumbling 2.5% on Wednesday, the most since November. The country is also experiencing tighter liquidity during a crackdown on risk, with the onshore benchmark money-market rate rising to the most expensive in two years.

Nickel was dragged to a ten-month low on easing supply concerns in the Philippines after lawmakers rejected the appointment of Gina Lopez as Environment Secretary. 

“The weakness in metals is mainly due to spillover from the decline in iron ore,” Xiao Fu, an analyst at BOCI Global Commodities UK Ltd., said by phone from London. Tighter liquidity is a concern for some steel producers who are “overly leveraged”, she said.

The recovery of iron ore futures from six-month lows in April was abruptly reversed on Thursday with a plunge of 7.3% to 485 yuan ($70) a ton, the maximum allowed by the exchange. Steel futures also slumped 7.3% in Shanghai.

The Bloomberg World Mining Index of shares fell for the fourth day. BHP Billiton, the world’s top mining company, lost 2.3% in London, while Rio Tinto Group, the second largest, sank 1.2%, after reaching the lowest level since November.

Nickel fell 1.7% $9 070 a ton, extending a 3% drop on Wednesday after Lopez’s appointment was blocked. The environmentalist-turned-politician had undertaken nationwide inspections on mines in the Philippines, ordering the closing of more than half the country’s metal mines, rescinding permits for areas yet to be developed and canceling future open-pit operations.

© 2017 Bloomberg

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