FOCUS - Liberium downgrades Glencore on gloomy H2 copper, zinc outlook

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Archie Hunterarchie.hunter@fastmarkets.comDeputy Head of Physicals+44 (0) 20 7337 2143

London 28/07/2016 - Equities broker Liberium has downgraded miner-trader Glencore to a 'Sell' rating, expecting lower copper and thermal coal prices later this year.

Glencore share prices are now at 1.90 pounds per share after hitting lows of 72p in January. Liberium also rates BHP Billiton, Rio Tinto, Anglo American, South 32, Antofagasta and KAZ Minerals with a sell rating - all have share prices well above target.

Liberium now forecasts LME three-month copper prices to average $1.80 per pound in the second half of 2016. Comex copper for delivery in September are at $2.185.

"The copper price has enjoyed a rally post Brexit but we believe that with futures positioning extended and key macro demand indicators rolling over that the price will soon begin to fall," it said

Copper longs on the Comex and LME have piled in since Britain's Brexit vote and are now overextended.

"The net positioning is now extended in historical terms and we would expect it to eventually reverse," Liberium said, adding that positioning shifts should affect metal prices.

Chinese demand for copper is up a strong 14 percent so far this year, ahead of early estimates of flat to a small uptick, due to massive state investment in fixed assets - particularly infrastructure - since the start of 2016.

But state investment in fixed assets stands in stark contrast to that of the private sector, which has moved into decline, Liberium said.

"State spending should eventually roll off if the government plans to stick with its stated policy objectives," Liberium said.

Furthermore, refrigerators and air conditioning units, which accounted for 10 percent of Chinese copper demand in 2015, are now in "mid-single-digit negative territory", it added.


SUPPLY SHOWS NO SIGNS OF ABATING

Copper supply has been unexpectedly strong despite low prices this year, up 4.5 percent from the start of the year to April, Liberium said.

Industrial action has been low, possibly because workers do not want to provide an excuse for companies to close mines in a low-price environment. And struggling miners have cut costs and boosted production.

Secondary copper supply was also up 5.6 percent to April, according to the International Copper Study Group.

Supply could be hit by elections in the Democratic Republic of Congo, Liberium said, but this is unlikely in Zambia, where citizens go to the polls in August.


ZINC HAS LIMITED UPSIDE

Liberium are also cautious on zinc, which has been the darling of analysts and is up a whopping 51 percent at $2,183 per tonne on the LME three-month contract from a low of $1,445 in January.

"We also believe further upside in zinc is limited as price elastic supply responds to the recent bounce in prices," Liberium said.


(Editing by Mark Shaw)



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