Dr. Copper Takes A Bath——Prices Down 25% in 2015 And Heading Lower

Copper prices fell in London on Thursday ending a dismal year as industrial metals were battered by a toxic mix of oversupply and concern over demand from China.

Analysts don’t expect much respite for copper in 2016, with the oversupply expected to continue and the macroeconomic picture still uncertain. Among other factors, commodity prices have been hit by a stronger dollar, and few economists expect the greenback to weaken in any meaningful way.

“I think that the bear market is not totally complete,” said Boris Mikanikrezai, an analyst at financial markets research company Fastmarkets. “Although a temporary rally in metal prices is possible over a one-to-three-month horizon, the macro fundamental picture may warrant lower prices.”

On Thursday, the London Metal Exchange’s three-month copper contract was down 0.5% at $4,720.50 a metric ton in midmorning European trade. Other base metals were mixed.

Copper has lost about a quarter of its value this year. Among other base metals, nickel has lost 42%, zinc is down 25% while aluminum fell 18% over the year.

In retrospect, 2015 will be considered a year that can be safely forgotten when it comes to copper,” analysts at Aurubis, Europe’s largest copper producer, said in a report.

Worries about the health of the Chinese economy will continue to roil metals markets in 2016, analysts said. The country is the biggest source of global demand for metals, accounting for nearly half of total global zinc consumption, 45% of global copper consumption and 40% of lead production.

“It will be another challenging year for China and that will affect metals,” said Xiao Fu, head of commodity markets strategy at BOCI Global Commodities. “Still, we expect the government’s fiscal stimulus package announced this year to provide some support for demand in 2016.”

Market participants will also be watching the U.S. Federal Reserve for the effects of higher interest rates on the dollar. The gyrations of the U.S. currency usually affect commodities, which are mainly priced in the greenback. When the dollar strengthens, commodities become more expensive for holders of other currencies.

The Fed’s expected rate rises next year may also further sap demand for metals, as the monetary move hurts developing economies, like India and China, analysts say. Investors withdrew a net $500 billion from emerging markets in 2015, the first annual outflow in decades. That has hurt local currencies as capital moves away in search of yield, making commodities more expensive.

Among other base metals, aluminum was down 0.6% at $1,525.50 a ton, zinc was up 0.1% at $1,631 a ton, nickel was up 0.9% at $8,755 a ton, lead was down 0.4% at $1,797 a ton and tin was down 0.1% at $14,525 a ton.