Tuesday, 07 Sep 2010
Base metals prices are driven by singularly by China. China is the biggest producer and consumer of base metals in the world and price direction in metal prices is largely dependent upon Chinese economic data releases.

These days China is making conscious effort to cool off its heating inflation and property markets. Applying monetary tightening measures to absorb the excessive liquidity seems to be one of the step. But this may translate into something that is not very supportive for base metals.

Copper which is primarily used as a construction material is supported by any rise in manufacturing activities in any of the developed countries as most demand comes from them. Import figures of major consuming countries give a fair idea about the demand for any metal in the coming time.

Having said this it is worth noting that import figures of base metals released by China, suggest a declining domestic consumption. YoY based numbers show that imports of all the base metals in China are falling. Chinese refined copper imports fell 24.2% in June from a month earlier. Imports fell for the third month in a row. They are down 44% from a record high of the previous year.

China imported 1.56 million tonne of refined copper in the H1 of this year down 13% from record arrivals last year but up 127% from the corresponding 6 months in 2008 and 74% in 2007.

Despite all these numbers, copper remained highly volatile in August. Prices remained clueless in terms of clarity of direction towards the initial couple of weeks. In the second week of the month copper showed some correction in prices when it fell from the high of INR 346.40 to INR 334.80 in the span of one week on the back of weak US data releases. Copper prices have jumped up recently as positive government news has improved the economic outlook.

An announcement from the US government that unemployment rates have decreased helped send the metal higher. Copper prices tend to respond well to positive economic news as it is used in a number of building and infrastructure applications.

Copper rose to its highest in more than four months during the starting of September as recent economic data from the world's two largest economies US and China brightened the outlook for demand. Positive data releases like sales of previously owned home rose surprisingly in July coupled with the US unemployment.