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Copper Dives Sharply As Investors React To Weaker World Bank Growth Forecast

By Neils Christensen of Kitco News
Wednesday January 14, 2014 10:10 AM

(Kitco News) - Precious metals are benefiting from rising global economic uncertainty as investors search for safe haven assets; however base metals are suffering on weaker growth prospects.

According to analysts copper is leading the way lower as investors and economists adjust their 2015 growth forecasts. The selloff in base metals picked up speed overnight after the World Bank cut its growth forecast for 2015, saying that the global economy will expand 3% this year, down from their previous forecast of 3.4%.

"The recovery has been sputtering in the Euro Area and Japan as legacies of the financial crisis linger ... China, meanwhile, is undergoing a carefully managed slowdown," the World Bank said Tuesday in the first release of its twice-yearly Global Economic Prospects reports for 2015.

Copper prices fell sharply on the news. Copper futures on the London Metals exchange hit a session low of $5,353.25 a tonne, overnight, its lowest level since 2009. On the London exchange the metal is down more than 14% since the start of the year. 

On the Comex exchange, March High Grade copper is down more than 4.5% on the day. The metal has been the worst performing commodity during Wednesday’s trading session. As of 9:55 a.m. EST, March copper was trading at $2.5175 a pound, down 12.6 cents on the day.

Although copper is a bellwether for economic growth, Julian Jessop, head of commodity strategy at Capital economics said it looks like the sell-off in base metals and copper appears to be over-done.

“The sharp overnight fall in copper prices seems to have been driven by investor panic rather than a sudden deterioration in fundamentals and, as such, it could swiftly be reversed,” he said.

Although the drop in copper prices has been attributed to the World Bank forecast, Jessop added that the downgrade is moving in-line with other forecasts.

Jessop said that Capital Economics is expecting copper to recover from its latest tail-spin and rally to $7,200 per tonne by the end of 2015.

For some analysts, the World Bank forecast has done little to change their view at copper will continue to suffer as growth remains week. On Tuesday commodity analysts at BNP Paribas reiterated their bearish call on copper, expecting the metal to underperform as China’s economic growth continues to slow.

However they do see some light at the end of the tunnel. “having now breached our long-standing target of $6,000 per tonne, we think copper is far closer to the end than the start of its bear market. It should have bottomed by late 2015, when the increasingly positive longer-term picture will start coming into view,” they said in their report.

Economists at CIBC are slightly bullish on copper as they expect Chinese government policies to eventually stimulate economic growth.

“We continue to see easing liquidity and loosening housing controls in more major cities – the latest round on accommodative policy to boost growth, which we believe is very supportive for base metals demand,” they said.

By Neils Christensen of Kitco News; nchristensen@kitco.com



Disclaimer: The views expressed in this article are those of the author and may not reflect those of Kitco Metals Inc. The author has made every effort to ensure accuracy of information provided; however, neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in precious metal products, commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.
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