Base metals caught up in the turmoil

Aluminum , China , Commodities , Copper , Gold , Metals , Steel Apr 22, 2013 No Comments

Commodities in disarrayIndustrial metals prices trading on the London Metal Exchange were shaken this week by an unexpected slowdown in Chinese growth, followed by gloomy indicators in the United States, which cast doubt on global growth strength.

Like oil and gold, base metals were taken Monday in a huge selloff movement affecting all commodities: speculative investors were rushing to withdraw from the market.

“The week started quietly in Asian trade … until China published macroeconomic statistics that totally reversed the trend“, said Edward Meir, analyst at broker INTL FCStone.

China, by far the largest global industrial metals consumer, announced Monday, against all odds, a slowdown in growth to 7.7% in Q1, reviving investors concerns about the strength of the economic recovery.

Immediately, prices dropped and the market turned to panic. In addition, a round of disappointing economic indicators in the United States (manufacturing activity slowdown in the New York area in April) accentuated the trend: on Monday alone, the price of copper lost about 5%.

“Investors realized that the global growth outlook had become too grim to absorb all the accumulated surplus, including stocks of copper, aluminum or steel,” added Meir.

In fact, the amount of copper in LME warehouses affiliates around the world increased by more than 85% since the beginning of the year, reaching levels not seen in a decade.

“The indicators published on Monday show that the metals market can not continue to only look at China to find a reason to grow: China has its own economic cycles with its ups and downs which impact its demand for metals,” warned Mr. Meir.

Copper has widened its losses over the week, stumbling Wednesday after a sharp rise in the dollar against the euro and in the wake of disappointing new indicators in the United States (including an unexpected downturn in the manufacturing activity in the Philadelphia area and a decline in March of the composite index of U.S. indicators).

But while U.S. stocks rose sharply since the beginning of March, the metals market should continue to benefit from the recent investor appetite for risky (and more profitable) assets.

Besides, it is ironic to see strong copper sales because of a weakened demand in China when the physical metal consumption is just started to grow as is usual in Q2.

Beyond copper ($6,921), which will ultimately lost nearly 7% in five days, tin ($20,760) lost 5% and nickel ($15,221) 4%, while aluminum ($1,885) and zinc ($1,877) grew slightly.

Pascal Blanc

Pascal has implemented numerous software solutions in the areas of procurement, sourcing, spend management, supplier evaluation and performance. His clients include Fortune 500 companies in Europe, Asia and North America. He is a co-founder of Source & Procure.

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