Base Metals turn hot commodity in China
China has turned out to be the global nerve centre for base metals. Surging demand from China for base metals like copper, zinc, lead and aluminium is helping the commodities output to grow at unprecedented levels.
According to Barclays Capital, in 2010 while the base metals output from China soared at record levels, the growth phase for these commodities is going up in 2011.
¡°For many of the metals, the strength in domestic raw material production resulted in a reduction in the proportion of imports used in refined metal production,¡± Barclays said in a recent research note.
¡°How sustainable this trend proves to be will be a key factor behind relative price performance.¡± In the case of copper, Barclays says it looks for slower but still strong growth in domestic output, although not enough to dent the need for imports.
For tin, it may be difficult to replicate last year¡¯s supply growth since much was due to improved efficiency at existing mines and recovery of tailings.
For lead and zinc, an increase in 2010 output was due to small mines running at full speed, but current mines are facing a declining ore-reserve base, so strong growth will depend on factors such as investment in large mines.
Barclays said: ¡°Overall, the impact on prices and market balances of slower Chinese base-metals production growth will depend on how this is counterbalanced with slower demand growth, with lead and zinc the metals where this will be a key swing factor for 2011.¡±
The bank further said that Chinese demand for base metals will grow in 2011, assuming there is not an ¡°over-tightening¡± of monetary conditions.
The People¡¯s Bank of China has said that it will raise interest rates for the third time since mid-October, with the one-year yuan lending rate moving to 6.06% from 5.81%.
¡°China raised rates from 2004 to early 2008 without interrupting the upward trend in prices. In our view provided there isn¡¯t an over-tightening, then Chinese base metals demand will still be on track for another year of strong, albeit slower, growth,¡± Barclays said.