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Metals Slide on Global Growth Concerns

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05/04/2017 | 11:05pm CEST
By Ira Iosebashvili and Yifan Xie 

Metals prices slid to their lowest levels in months Thursday, amid worries over growth in China and the U.S.

Declines began on Chinese exchanges and rippled around the world. The closely watched price of iron ore traded on the Dalian Commodity Exchange closed down 8%, the daily trading limit, at 485 yuan (US$70.33) a ton. Nickel fell to its lowest level in nearly a year in London, while copper tumbled in the U.S.

The selloff is an alarming sign to some investors, who view demand for base metals -- which are used to make everything from bridges to smartphones -- as a barometer for global growth. Prices for copper and other metals have already given back most of a late 2016 rally that came on hopes of more dynamic expansion in the U.S. and abroad.

Investors "who were hoping for a repeat of last year's positive performance are turning tail and running," said Sameer Samana, global quantitative strategist at Wells Fargo Investment Institute.

Money managers are concerned that demand for raw materials from China may be weakening, as regulators crack down on borrowing and the effects of a massive government stimulus fade. China accounts for around nearly 50% of global demand for copper and other base metals.

They have also turned cautious after a spate of weak data in the U.S., including disappointing economic growth in the first quarter and weak consumer spending last month. At the same time, many now expect the White House will have a difficult time passing fiscal legislation that would boost commodities demand, such as increased infrastructure spending.

Net bets on copper by hedge funds and other speculative investors hit their lowest level since November last month, data from the Commodity Futures Trading Commission showed.

Mr. Samana said he took profits in base metals, oil and gold at the beginning of the year, believing the rallies in those assets were unlikely to continue.

The already weak investor sentiment got a fresh hit on Thursday after six government agencies pledged to curb runaway local-government debt by stricter oversight of the projects they are pumping money into. Many of those projects are private-public partnerships that fund the construction of infrastructure projects such as bridges and dams.

Copper for July delivery closed down 1.3% at $2.5115 a pound on the Comex division of the New York Mercantile Exchange, its lowest settlement since Jan 3. Nickel fell to $9,015 a metric ton in London, its lowest close since last June.

Supply concerns have also weighed on prices. Inventories of copper in London Metal Exchange warehouses across Europe and Asia by 64,000 tons, or 25%, over the course of Wednesday and Thursday, according to Commerzbank research.

In precious metals, gold for June delivery fell 1.6% to $1,228.60 a troy ounce, their largest one day decline of the year.

A bevy of political risks that worried investors in April have receded in recent days, giving them less reason to hold the safe haven metal.

A strong showing by centrist Emmanuel Macron in French presidential elections last month eased worries about a populist surge that threatened to bring anti-euro candidate Marine Le Pen to power. A second round of voting will be held Sunday. Investors are also less concerned that tensions between the U.S. and North Korea will escalate.

"The worriers look around and they don't see anything worrying on the horizon right now," said George Gero, managing director at RBC Capital Markets.

--Daivid Hodari contributed to this article.

Write to Ira Iosebashvili at [email protected]

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