The Hindu Business Line : Chinese demand to support metals

Supporting factors
China’s primary aluminium and alumina output growth strong in July.
Possibility of a bounce-back in China’s base metals demand and, therefore, prices very real.

G. Chandrashekhar

Mumbai, Aug. 24 Among various commodities that have been impacted by the gyrations of wider financial markets following the debacle in the US mortgage-backed securities market, base metals seem to have been hit quite hard.

Silver lining

The market has plunged to recent new lows, especially copper and aluminium whose prices were hammered down. The base metals market is likely to continue to witness volatile conditions until concerns linger over the financial market.

However, continuing strong Chinese demand provides a silver lining to this otherwise murky picture. China’s ravenous appetite for metals consumption appears not satiated for the present.

The reassurance that the fundamental demand trends are firm is provided by base metals trade data from the Asian major. Latest data from the China National Bureau of Statistics showed primary aluminium and alumina output growth remained strong, while copper production levelled off in July.

In addition to underscoring a positive trend of imports, the data showed a marked fall in Chinese exports, especially of aluminium, lead and tin.

Nickel imports

Meanwhile, China’s net refined nickel imports rose by 55 per cent year-on-year in July while nickel-bearing iron ore imports spiralled to 2.28 million tonnes (up 784 percent year-on-year). The strength in both refined nickel and concentrate imports bears testimony to China’s robust nickel demand to feed rapidly expanding stainless steel, an analyst pointed out adding that subsequent cuts by local stainless steel producers and sharp fall in LME nickel prices may change both the volume and composition of Chinese nickel imports.

Overall, as domestic inventory is drawn down, consumption stays robust, imports continue to remain steady and exports slow, the possibility of a bounce-back in China’s base metals demand and therefore prices is very real.

Investors cautious

Investors have, of course, turned rather cautious; but once the sub-prime dust settles, the metals market is likely to return to demand-driven activity. The latest OECD composite leading indicators too are positive. Unflagging manufacturing activity and investment in infrastructure are expected to continue to keep the industrial metals market worthy of attention.