HardAssetsInvestor

Written by Sumit Roy  |

July 14, 2011

Base Metals Report: China Optimism Supports Prices

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Despite host of head winds, copper, nickel and tin surged over past month.

Base metals rallied sharply over the past month, as traders used lower prices to build positions. The performance was especially impressive considering the myriad head winds the group faced and still faces today.

A seemingly never-ending stream of negative news flow regarding Europe’s sovereign debt crisis, weak U.S. economic data and a rising U.S. dollar made up the proverbial wall of worry that base metals had to climb.

Even China acted as a drag on the group at times. The PMI Manufacturing gauge fell to 50.9 in June, the lowest level since February 2009.

Meanwhile, consumer prices surged 6.4 percent year-over-year in June—the fastest rate in three years. In response, the country’s central bank raised interest rates for the third time this year, sending the one-year lending rate to 6.56 percent.

But finally this week, markets received good news on China. The country’s economy grew by 9.5 percent year-over-year in the second quarter, the government said. While it’s the slowest rate of growth since September 2009, it is still a strong rate by any measure, and came in above the 9.3 percent expectation.

Separately, June’s industrial production expanded by 15.1 percent, its fastest year-over-year rate since May 2010.

Base metals’ strong performance over the past month suggests that the sector is still keying off the outlook for China—the biggest consumer of most of these commodities. The data in aggregate indicates that economic growth in the country remains robust, though it is slowing modestly as authorities have been hoping for.