commodity bubble ... technical correction.

  1. 5,816 Posts.
    Hmmm ... one thing about 'hedgies' ... they move markets and fast.

    Falling metal prices bring down stocks on worries about China and a bubble.
    Craig Wong
    Canadian Press
    Wednesday, October 13, 2004

    TORONTO (CP) - Canadian mining and metals stocks were hammered Wednesday as the prices for copper and nickel plummeted over worries about Chinese demand and growing fears about a possible bubble in commodity prices.

    The diversified metals and mining sector on the Toronto market fell 4.35 per cent, one of its biggest losses in quite a while. Shares of Inco, (TSX:N) Canada's biggest nickel producer, dropped $2.70 or nearly six per cent to $44.30, while Falconbridge (TSX:FL) fell $1.42 to $31.08. Teck Cominco (TSX:TEK.B), the Vancouver-based zinc and copper miner, lost $1.06 to $26.84.

    Elsewhere, shares of metals giant Noranda (NRD), fell 50 cents, or 2.3 per cent, to $21.05, while Montreal-based Alcan lost $1.95 to $58.83, a drop of 3.2 per cent for Canada's big aluminum producer.

    Gavin Graham, director of investments at the Guardian Group of Funds, called the mining share selloff a "massive overeaction" and suggested the decline was temporary.

    "China's demand for commodities is going to remain a prominent factor in any discussion of commodities for the next decade at least because they weren't in the market in a big way a decade ago, the last time they were growing this fast," Graham said.

    "It may have slowed down somewhat, but the major thing with China is they need to keep the growth going because that's they way they absorb the 20 million people a year that join the workforce."

    Copper prices fell nearly 10 per cent in trading in London after the metal hit 16-year highs earlier this week. Prices for nickel, zinc, aluminum and precious metals also headed lower.

    Some attributed copper's plunge to this year's spike in oil prices, which could hit the metal's biggest buyer - China - and the rest of the world like a tax on global growth.

    "Most global indicators suggest global growth is due a pause at some point in 2005, and obviously that would take some of the steam out of commodities demand," said James Gutman, senior economist for commodities at Goldman Sachs in London.

    Others attributed copper's collapse to a huge technical correction rather than some major change in supply and demand fundamentals.

    When commodities markets rise as dramatically as copper has lately, they are prone to "vicious" corrections, which is what occurred Wednesday, said Bill O'Neill, with LOGIC Advisers in Upper Saddle River, N.J.

    Base metals and the companies that mine them have been the hot sector in Canada in recent months.

    According to Morningstar Canada, record oil prices propelled the natural resource mutual fund sector to an 8.9 per cent gain last month - the best average performance among the 32 categories tracked by the fund-monitoring company.

    September's second-best performance came from precious metals funds, up 7.6 per cent.

    Funds concentrating on natural resources also had the best third-quarter performance, averaging 9.7 per cent, and the best year-to-date return, 12.9 per cent, Morningstar said.

    Chantal Gosselin, a senior mining analyst at Haywood Securities, said the fall in both base metals and stocks in mining companies follows a run up in recent weeks.

    "There have been plays of hedge funds and big funds buying commodities, so that's one factor," she said.

    Gosselin added that reports suggesting economic growth in China may be slowing and that the Chinese government may be looking to raise interest rates could also have been partly responsible for the selloff.

    "On the demand side of the commodities, that would be a big influence for the future," she said.

    © The Canadian Press 2004

    Cheers ... tight stops.

    This is only my view ... read the red stuff.
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