Base Metal Prices Hit Multi-Month Lows Amid Weak Chinese Economic Data
Base metal prices have recently fallen to multi-month lows, driven by a combination of supply factors and increased demand pressures, according to a report by Commerzbank Research released on Tuesday.
Reflecting this decline, the London Metal Exchange (LME) index, which tracks six non-ferrous metals traded on the LME, dropped by 5.6% week-on-week, slipping below the 4,000-point mark for the first time since early April.
Copper experienced its largest weekly decline in nearly two years, falling 5.7% to around $9,300 per ton, its lowest level in 3.5 months. Aluminium prices dropped over 5%, reaching just above $2,300 per ton, the lowest since the end of March. Nickel prices fell 3.6% to just over $16,000, the lowest since February. Zinc dropped to a three-month low of around $2,700 per ton, while lead and tin fell to $2,100 per ton and around $30,000 per ton, respectively.
A significant factor in the price decline has been weak economic data from China. The Chinese economy grew by just 0.7% in the second quarter compared to the previous quarter, and 4.7% year-on-year. Particularly weak sectors included retail and real estate, which are crucial for metal demand due to their importance in construction activities.
Hopes for short-term stimulus measures were dampened by the third Plenum of the Chinese Communist Party, which met last week. A minor interest rate cut by the Chinese central bank failed to improve market sentiment.
Chinese exports of refined copper more than doubled last month, according to data from the Chinese customs authority. Exports of unwrought copper and copper products also reached a record level in June, leading to a sharp rise in copper inventories on the LME, which have doubled since mid-May to 234,000 tons. Similarly, exports of unwrought aluminium increased, causing a buildup in Shanghai Futures Exchange inventories.
Despite the current situation, the report suggests that the decline in base metal prices might be exaggerated. Commerzbank Research believes that the rate cuts already made by central banks, along with those anticipated in the coming months, could lead to an economic recovery and improve market sentiment.
Additionally, the lower price levels are likely to pressure metal producers to reduce production. Until recently, high production levels in China were likely a result of previously high prices. Two Chinese smelters have recently announced significant production cuts in copper for the next year, which could further curtail the supply of the base metal.
