World Bank Growth Forecast Downgrade Drags Down Metal Prices

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CPER
United States Copper Index Fund ETV

Submitted by Mai Bantog as part of our contributors program.

World Bank Growth Forecast Downgrade Drags Down Metal Prices

Copper and other base metal prices fell Wednesday after the World Bank downgraded its 2015 economic growth forecast from 3.4 percent to 3.0 percent, citing underperforming economic prospects in Asia, Europe, and other major economies. Even Brent oil fell to less than $50 per barrel as well as the strengthening US economy is not enough to offset trouble in the Eurozone and emerging markets.

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According to FastMarkets, some of the reasons for the growth cut include persistently weak global trade, the possibility of financial market volatility as interest rates in major economies rise on varying timelines, and the ongoing period of stagnation or deflation in the Eurozone and Japan.

Still, analysts were surprised at the speedy decline of base metal prices, pointing out that there is no big economic reason to explain it, as supply and demand economics have not changed substantially.

Copper fell behind as low as $5,472 per ton — the lowest intraday trade since July 2009. Often seen as a barometer of industrial health because it is the metal most sensitive to economic growth, copper recovered slightly and closed $5,500 per ton, down by 6.6 percent.

Copper was predicted to be in a surplus this year for the first time in 2015, and analysts expect long term investors and bargain hunters to be attracted to the low price of the metal. However, there is a level of uncertainty on the trajectory of copper prices. “If the price manages to go up about 1 to 2 percent this afternoon, then it could stop the bleeding,” Benjamin Louvet, manager of Prim Commodities fund, said. “But if it falls sharply two days in a row, then we will see some margin calls, and hedge funds will have to reduce their leverage and sell some of their positions.”

In other metals, nickel fell 2.2 percent in its lowest level since February 2014. The industrial metal is anticipated to be in deficit at the second quarter of the year, with the reinforcement of the Indonesian ore export ban enacted since the beginning of 2014. Hence, prices are expected to recover eventually, especially with positive trends like new nickel sources. For instance, production in the Kun-Manie nickel exploration project by Amur Minerals Corporation (OTC: AMMCF) could start soon, as the Russian firm is already awaiting the final authorization of Prime Minister Dmitry Medvedev for its production license application. The Kun-Manie flagship project could produce at least 830,000 metric tons of nickel.  Amur Minerals‘ shares recovered from $10.50 to $11.00 per share during Thursday’s closing.

Lead also hit 30-month lows, while zinc and aluminum fell into their respective nine- and eight-month lows. Energy, agriculture, and metal commodities all slid to their lowest levels since 2002, as coal market supplies rose in the last five years while demand has slowed due to increased use of energy alternatives like natural gas and renewables.

While the sharp decline in the prices of commodities is good for many industries and households, because of the price drop in energy and raw materials, the phenomenon will still put a deflationary pressure on many economies.