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Glencore drags down mining shares

London - Mining shares retreated, dragged down by a second day of losses in Glencore [JSE:GLN] after the commodities trader and miner reported the smallest profit since becoming publicly traded. Nickel fell to a six-week low.

Glencore lost 3.5% after the company on Wednesday reported a 66% plunge in first-half profit on weak raw-material prices. Hochschild Mining, a Peruvian gold producer, and South Africa’s Sibanye Gold [JSE:SGL] slid more than 8%.

Nickel for delivery in three months fell 1.1% to $9 885 a metric tonne by 11:31 a.m. on the London Metal Exchange, the lowest since July 11. The metal is down 4.1% this week, poised for the biggest drop since May.

Glencore shares are pulling back after the stock doubled this year on evidence that management is cutting debt, selling assets and helping the company weather this period of weak raw material prices.

Nickel is also retreating after rallying this year. Citigroup analysts said earlier this week that current price levels won’t be sustained into the fourth quarter and the effect of a mining audit in the Philippines has been "modest."

Running out

"The sector has run out of the steam," Ben Davis, an analyst at Liberum Capital in London, said by phone.

There’s also concern about the outlook for iron ore, Davis said. Steel production in China, the world’s biggest supplier, will probably contract this year and shrink further in 2017 as local demand slows, hurting prospects for the metal, according to Li Xinchuang, a vice chairperson at the China Iron & Steel Association.

Citigroup to UBS Group have also said that prices are set to ease.

Copper was little changed after four days of losses. Metal for immediate delivery added 0.2% to $4 639 a tonne.

Prices are supported by Asian traders buying back the metal to close out bearish bets, according to Malcolm Freeman, a director of Kingdom Futures in London.

Inventories of copper tracked by the LME have surged 25% over the past four days to the highest since November.

Metal held in Asian depots are at the highest level since October 2013. Barclays also flagged risks of a "sharp slowdown" in copper demand from China in the second half, after the country cut imports to the lowest in 17 months.

In other metal news:

Zinc for immediate delivery traded at a $7.25-a-ton premium to the benchmark three-month contract, the widest backwardness in 15 months. Orders to withdraw the metal from the LME’s warehousing network climbed 10%.  

United Company Rusal, the largest aluminium producer outside China, said second-quarter profit rose 10% compared with the opening three months of the year as prices gained and the company diversified sales away from Europe.

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