LONDON: Industrial metals prices are set for their biggest annual fall in years after signs of slowing growth in Chi
LONDON: Industrial metals prices are set for their biggest annual fall in years after signs of slowing growth in China's commodities-hungry economy and a U.S.-China trade war reversed a two-and-a-half-year rally.
Copper, aluminium, zinc and nickel are down between 16 and 26 percent this year as concerns that weaker growth will require less metal overpowered the effects of supply shortfalls and dwindling stockpiles, which generally support prices.
China, which consumes close to half the world's industrial metals and is therefore key to setting prices, has had a run of worsening economic data, with figures on Monday showing the first monthly fall in factory output in two years.
Benchmark copper on the London Metal Exchange (LME) closed down 0.5 percent at $5,965 a tonne and down 17.7 percent this year -- the biggest fall for the metal used in power and construction since 2015.
Aluminium, used in transport and packaging, finished up 0.1 percent at $1,846 but was 18.6 percent lower for the year - also its weakest performance since 2015 - after Russia's Rusal, the largest producer outside China, agreed a deal in December with U.S. authorities to remove it from a sanctions list and allow its metal onto global markets.
Overall, the LME's index of six major industrial metals was down 18 percent and had given back around half of the gains made between the early 2016, when the index hit a 6-1/2 year low, and the middle of this year.
Price swings are likely to be calmer in 2019, with both demand and supply weak, analysts said.
"It'll be more like a sideways slog (for prices) next year," said INTL FCStone analyst Edward Meir.
"The supply side is tight, but my fear is that with demand weakening it will offset all these supply concerns so we could see inventories begin to pick up."
Metals began 2018 on a high, with copper and nickel reaching the highest in more than three years, aluminium hitting a 7-year peak and zinc surging to its priciest in a decade.
Collapse set in over the summer after U.S. President Donald Trump unleashed a trade war with China.
Investors feared trade tariffs would curtail Chinese economic growth, and the uncertainty helped push the dollar to an 18-month high, making metals more expensive for non-U.S. buyers and helping depress demand.
"If the trade war goes away there's room for prices to move higher," said Saxo Bank analyst Ole Hansen, predicting copper would average around $6,500 next year.
Also supporting prices are tight supplies, with global copper, zinc, nickel and aluminium markets in deficit and only zinc expected to see rapid supply growth next year.
Inventories of zinc, copper and aluminium in LME-registered warehouses reached decade-lows this year, though they have recently picked up.
Time spreads have also tightened, with the cost of metal with nearby delivery dates creeping up relative to contracts for later delivery, suggesting traders are finding it tougher to secure the metal they need.
Zinc on Monday closed up 1.1 percent at $2,467 a tonne, but the metal used to galvanise steel has dived 25.7 percent this year, the weakest performer among industrial metals.
With new mine supply expected to come onto the market next year, Capital Economics sees zinc at $2,300 by the end of 2019.
Stainless steel ingredient nickel ended down 0.4 percent at $10,690 and was 16.2 percent lower on the year, its biggest fall in three years.
Battery metal lead finished down 1.9 percent at $2,021 a tonne and was down 18.8 percent this year, its largest tumble since 2011.
Tin, used for solder, closed 0.1 percent lower at $19,475 and was almost unchanged for the year, improving on its 5 percent fall in 2017.