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The commodities rout has spread to copper, sending the industrial metal into a tailspin on growing fears of a weakening global economy. The red metal plunged 5.2 per cent to $2.55 (U.S.) a pound, a price not seen since 2009, when financial markets were in the grip of a global economic crisis.
Copper has been sliding for a few years amid a slowing Chinese economy and an increasing surplus of the metal. But the sudden and sharp drop on Wednesday – copper lost as much as 8 per cent before recovering slightly – shocked markets already reeling from oil’s free fall.
“It’s difficult to find any fundamental reason for the dramatic slump except fears about demand have been underlined by the growth outlook lowered by the World Bank this morning,” said Robin Bhar, head of metals research at Société Générale.
The World Bank cut its economic forecast for this year and said the stronger U.S. economy would not be enough to boost global growth.
Copper, used in all sectors from construction and power generation to cars and electronics, has long been viewed as a bellwether for the world’s economic health.
Commodity analysts also pointed to a bevy of other reasons for the steep decline, from short sellers to investors selling copper funds to weak economic data in Europe.
But the reality is that China, which consumes about 40 per cent of the world’s copper, is not gobbling up enough of the red metal already on the market. BMO Nesbitt Burns estimates a copper market surplus of about 450,000 tonnes.
More copper started trickling into the market last year. Canada’s Hudbay Minerals Inc. started its new mine in Peru and U.S.-based Freeport-McMoRan Inc. increased production at one of its American mines.
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