COM: Base Metals gets a rude shock from China’s rate hike
AHMEDABAD (Commodity Online): China's return from long holidays saw its regulatory bank raise its interest rates which gave a rude shock to Base Metals.
Base metals especially Copper which saw a recent run up was because of investment demand. Base metals’ recent run up was ahead of fundamentals so also the cause for correction as recent rise in prices may dampen metal’s demand. While, China’s PBOC’s rate hike to tame inflation gave a fuel in it.
The base metals may fall further because of the China’s central bank move as cost of borrowing rises which may decrease demand. Despite it was an expected move from PBOC, base metals are likely to fall further from the present levels. However, outlook of base metal is still positive for the medium term so positional traders are advised to buy on dips.
Base metals on LME, the benchmark metal exchange, traded lower in Asian session after Chinese participants returned to the markets after weeklong holidays. The metals lost its ground this morning after the announcement of China’s central bank to increase its benchmark deposit and lending rates by 25 basis points.
The metals went up recently was because of investment demand and on dollar weakness against Euro and other major currencies. A weaker USD is supportive for dollar denominated commodities and makes it cheaper for other currency holders. The metals were trading higher in the past days was ahead of fundamentals.
Base Metals rose in the recent days was mainly because of strength in world markets on strong US economic indicators and Chinese economic data and ignored the physical stock taking at warehouses across the globe, especially the benchmark LME. Inventories of major metals at LME showed continue rise in last few days.
The China’s liquidity tightening move to curb inflation may adversely affect the metal’s demand while copper may affect severely as copper is a metal widely used in building construction, power generation and electronic products. If inflation rises further, the more tightening measures are likely from the China in the coming few months.
Copper last trade at LME was USD 9985.75 a tonne. Copper prices crossed the 10000 USD mark recently and are struggling to stay above that level. While Lead and Nickel on LME traded at USD 2533.25 per tonne and USD 28135 per tonne respectively. At LME, Aluminium last traded at 2553.75 a tonne.
Metals are likely to continue cues from the USD and other major currencies movements and global equity markets. Traders are eyeing on MBA mortgage applications data and the U.S. Fed’s chairman Bernanke’s statement on the economy.
