China drives global base metals market

Despite the weaker dollar, GDP data out of China is the main focus this morning, with the complex finding good support from economic data. However, copper and aluminium production data shows increased production in China despite the fact that the domestic market remains well supplied.

Base metals are trading slightly lower this morning. But although there was some selling in Asia before London markets opened, metals remain well supported. China’s data showed GDP grew at 8.9% y/y in Q3:09 — only slightly less than the 9% expected. A wide range of data released this morning continues to support strong growth in China.

Industrial production grew 13.9% y/y in September (and 8.7% YTD). Fixed urban investment grew at 33.4% YTD, while retails sales data shows strong consumer demand, growing at 15.5% y/y in September. The data shows well balanced growth on both the consumer and production side of the economy.

Putting some downward pressure on copper this morning is Chinese copper production figures which indicate a rise in refined copper production of 20.2% y/y, to 394,800mt in September. Compared to August figures, production is 8.2% higher.

With the Chinese market already well supplied, domestic spot prices for copper could remain subdued in China. However, with ongoing supply disruption, combined with a weaker dollar, downside for copper should remain limited. After touching $6,650 yesterday afternoon, the metal retreated back towards $6,550 this morning.

As with copper, aluminium pushed higher quickly yesterday, trading as high as $1,980 at one stage. With crude oil above
$80/bbl again, and the weaker dollar, support remains. The $2,000 level continues to provide resistance and the fact that Chinese aluminium production is growing again, could see the already large stock overhang linger longer.

China’s refined aluminium production in China jumped 5.5% y/y to 1,207,200mt in September. Due to the decline in aluminium production earlier this year, YTD aluminium production in China is still down 7.6% over the same period last year.

The rest of the complex rallied higher yesterday but is also drifting slightly lower this morning. The impact of the closure of lead smelters in China can be seen in 6.3% m/m decline of lead production in China in September (although lead production is still up 7.1% y/y). Lead continues to hold on to trade above $2,400, while zinc is at $2,220. Nickel managed to break above $19,000 to close at $19,735 yesterday.

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