The Hindu Business Line : Recent metals demand may be exaggerated: Report

Behind the scene
China continues to be the mover and shaker of the world metals market.
Growth rates in tonnage terms have risen four-fold for metals such as zinc.

Mumbai June 19 The strong positive correlation between economic growth and metals consumption is well known.

Mover & shaker

Clearly, the "balance of growth power" is moving away from western world to Asia, although the US and Europe continue to be large consumers of metals - China has to be watched for clues to metals prices.

China continues to be the mover and shaker of the world metals market as it is the world's fastest growing significant economy.

Its ravenous appetite for metals to fuel growth means that it is the key driver of sentiment in most metals markets.

Acceleration

There has been a dramatic acceleration in Chinese metals demand so far this decade.

Growth rates in tonnage terms have risen four-fold for metals such as zinc and copper and 16-fold in the case of nickel.

China has accounted for the bulk of global demand growth over the same period, ranging from almost 60 per cent of the growth in aluminium consumption to 130 per cent of the growth in lead demand (because lead demand outside China has fallen).

The evidence is that so far this year, demand growth has continued to accelerate for several key metals, including aluminium, copper and nickel.

Chinese production and trade data are often partial and always difficult to interpret, with the picture further obscured by the potential for big variations in local inventory levels, according to a recent Barclays Capital Research report.

Note of caution

Adding a note of caution around the estimates of recent demand growth, the report referred in particular to growth rates for aluminium, copper and nickel, which may be getting exaggerated by local inventory changes.

Metals consumption indicators such as fixed asset production (up by an average of 24 per cent in the first quarter), industrial production (+ 17.5 per cent) and auto sales (+ 22 per cent) are robust.

Trade surplus

Such growth would suggest that stock building has been relatively modest.

Looking ahead, however, some slowdown in metals-intensive sectors in China cannot be ruled out, Barclays said, adding that this was because alongside the growth in the economy, inflation at current levels and the widening of trade surplus are not viewed as sustainable by the Chinese Government.