Shanghai copper prices dived to a three-year low on Monday as Chinese markets reopened, giving investors the first opportunity since January 23 to react to a coronavirus outbreak that threatens to damage the economy of the world's biggest metals consumer.
Other Shanghai-traded industrial metals also tumbled, following big price falls on the London Metal Exchange (LME) that took place while Chinese markets were closed. China's equity markets, oil, iron ore and soft commodities contracts and the yuan plunged despite the central bank's biggest cash injection into the financial system since 2004 and moves by regulators to curb selling.
The most traded copper contract on the Shanghai Futures Exchange (ShFE) fell by its daily limit of 7% to 44,780 yuan a tonne, the lowest since November 2016, before ending down 6.5% at 45,040 a tonne. Benchmark LME copper ended 0.8% lower at $5,523 a tonne - down around 7.5% from its close on January 23, 13% from a high in mid-January and near a two-year low of $5,518 reached last September.
"Clearly there are massive downside risks (for prices)," said Capital Economics analyst Kieran Clancy. A significant hit to demand was now priced in, he said, and if the virus is brought under control, demand will likely bounce back later in the year, lifting prices.
"But there's every chance that we see a hit that isn't reversed," he added. Analysts at Citi said they expected prices to fall to $5,300 over the next three months but recover to around $6,300 in the third quarter as China pumps money into its economy.
By Sunday, 361 people had died in China from the coronavirus, compared with 17 on January 23. At least another 171 cases have been reported in more than two dozen other countries and regions. Several Chinese cities remain in virtual lockdown with travel severely restricted.
Data released on Monday showed China's factory activity expanded at its slowest pace in five months in January, while industrial firms posted their first annual decline in profits in four years in 2019. Looking to head off market panic, China's central bank injected 1.2 trillion yuan ($173.8 billion) of liquidity into the markets via reverse repo operations on Monday.
It also unexpectedly cut the interest rate on those short-term funding facilities by 10 basis points. An adviser to the central bank said the chance of a benchmark lending rate cut on February 20 had significantly increased. Chinese regulators also asked investment managers to curb short-selling, sources told Reuters.
The ShFE exchange has suspended night-time trading until further notice. ShFE most-traded aluminium, nickel, zinc, lead and tin fell by between 3.7% and 5.8%. On the LME, benchmark aluminium finished down 2.1% at $1,686.50 a tonne after hitting its lowest since January 2017. Zinc fell 2.5% to $2,146, nickel slipped 1% to $12,725, lead tumbled 2.9% to $1,825 and tin closed 0.9% lower at $16,205.
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