Base metals came under pressure on Tuesday as slowing retail sales in the US coupled with worries over rising inflation put pressure on prices. Further monetary policy tightening by China’s central bank could be around the corner as inflation continues to rise.
Inflation for the month of January rose 4.9 percent; lower than expectations of 5.3 percent rise. The overall base metals pack witnessed sharp declines in yesterday’s trade. Apart from copper, lead, zinc and nickel too declined sharply on the LME, taking cues from the red metal.
Copper, the leader of the base metals pack hit a record high of $10,190/tonnes on the LME. But prices declined sharply by more than 2 percent on the LME yesterday and closed below the crucial $10000/tonne mark. There is another concern with respect to copper that high price of the red metal is hitting physical demand in China.
Chinese activity in the copper market is also low because of the recent impact of Chinese New Year holidays. China is the world’s largest consumer of copper and accounts for 25 percent of global demand. The red metal is expected to come under pressure and levels above $10000/tonne may not be sustainable as there is now a threat of substitution where-ever possible.
Outlook
Base metal prices are expected to come under pressure today as investors fear further monetary policy tightening by China. Inflationary pressures are rising and may affect economic growth going forward as interest rates rise amid a slowly improving global economic scenario.
