 "Base metals soften on weaker Chinese data")
Base metals softened up to 8.3 per cent in the past month, due to weak manufacturing data from China, coupled with renewed concerns on tapering of the third round of quantitative easing (QE3) by the United States Federal Reserve.
The HSBC Flash China Purchasing Managers’ Index fell to 50.4 in November from a seven-month high of 50.9 in October, marginally above the contraction line of 50. This poses an uncertainty over Chinese purchasing of base metals. “More than the US economic tapering talks, China’s weak economic signal is pulling back base metals. Also, the inventory of base metals has been continuously rising,” said Gnanasekar Thiagarajan, director, Commtrendz Research.
According to a Bloomberg survey, China’s economy, the world’s second largest, is estimated to grow by 7.4 per cent next year, after a 7.6 per cent increase this year. As its economic growth is a barometer for base metals’ consumption, the latter is expected to remain lower. Economists anticipated the announcement of an economic reform booster from the Chinese government at the communist party’s ‘third plenum’ last week but the government disappointed market expectations.
A recent report from Barclays Capital showed a 27 per cent month-on-month jump in Chinese copper import at 278,000 tonnes, due to a pick-up in financing demand. Analysts attribute the rise to bargain hunting.
The recent depreciation in the rupee against the dollar had partly nullified the global price decline in India. “For base metal producer companies in India, the depreciation in the rupee will improve their realisation. However, on the global front, we are yet to see any meaningful decline in production (which can support prices), despite several aluminium companies announcing production cuts. Nevertheless, we expect London Metal Exchange (LME) prices to improve in FY2015, as the announced production cuts address the demand-supply mismatch during FY2015,” said Bhavesh Chauhan, an analyst with Angel Broking.
The global market for refined copper swung into a 21,000-tonne surplus in August, rising after three straight months of a shortfall, mostly due to higher production, data from the International Copper Study Group showed.
Thiagarajan believes a softening in base metals will continue in the long term, with weak economic recovery to pull down aluminium, nickel and zinc. Copper, however, might see a slightly upward move from the current level, but it would be difficult to hit $7,200 a tonne in the near term from the current $6,992 a tonne, he added.
Global demand for refined lead outstripped supply by 46,000 tonnes in the first nine months of the year. Because of overall weakness in base metals, lead could drop further. However, consumption is expected to pick up in the first quarter of 2014. Therefore, lead prices are set to rebound.The HSBC Flash China Purchasing Managers’ Index fell to 50.4 in November from a seven-month high of 50.9 in October, marginally above the contraction line of 50. This poses an uncertainty over Chinese purchasing of base metals. “More than the US economic tapering talks, China’s weak economic signal is pulling back base metals. Also, the inventory of base metals has been continuously rising,” said Gnanasekar Thiagarajan, director, Commtrendz Research.
According to a Bloomberg survey, China’s economy, the world’s second largest, is estimated to grow by 7.4 per cent next year, after a 7.6 per cent increase this year. As its economic growth is a barometer for base metals’ consumption, the latter is expected to remain lower. Economists anticipated the announcement of an economic reform booster from the Chinese government at the communist party’s ‘third plenum’ last week but the government disappointed market expectations.
A recent report from Barclays Capital showed a 27 per cent month-on-month jump in Chinese copper import at 278,000 tonnes, due to a pick-up in financing demand. Analysts attribute the rise to bargain hunting.
The recent depreciation in the rupee against the dollar had partly nullified the global price decline in India. “For base metal producer companies in India, the depreciation in the rupee will improve their realisation. However, on the global front, we are yet to see any meaningful decline in production (which can support prices), despite several aluminium companies announcing production cuts. Nevertheless, we expect London Metal Exchange (LME) prices to improve in FY2015, as the announced production cuts address the demand-supply mismatch during FY2015,” said Bhavesh Chauhan, an analyst with Angel Broking.
The global market for refined copper swung into a 21,000-tonne surplus in August, rising after three straight months of a shortfall, mostly due to higher production, data from the International Copper Study Group showed.
Thiagarajan believes a softening in base metals will continue in the long term, with weak economic recovery to pull down aluminium, nickel and zinc. Copper, however, might see a slightly upward move from the current level, but it would be difficult to hit $7,200 a tonne in the near term from the current $6,992 a tonne, he added.
An Emkay report said the developments with respect to QE3 tapering would be most important for base metal price movements. Announcement regarding LME warehouse rules would be another important factor for a clear direction, it added.