Base metals climb on upbeat Chinese data but volumes low

Base metals were all in positive territory on Tuesday morning on the LME after the release of better-than-expected Chinese data this morning and dovish US Federal Reserve remarks last night.

In today’s data, Chinese August industrial production rose 6.3 percent year-on-year in August, slightly better than expectations of 6.2 percent and higher than July’s reading of 6.0 percent.

Fixed asset investment in January-August increased 8.1 percent year-on-year, beating the forecast of 7.9 percent and the same level as in January-July.

August retail sales growth at 10.6 percent year-on-year also beat a forecast of 10.2 percent and July’s growth of 10.2 percent.

Still, investor appetite for metals remains subdued. On Monday, investors in risk asset markets were concerned about the possibility of a US rate rise in September as well as central banks in Europe, the UK and Japan moving away from further easing.

But some fears appear to have been allayed after dovish comments by Federal Reserve governor Lael Brainard, who warned that it would be a mistake to raise interest rates too quickly and advocated “prudence in the removal of policy accommodation”.

After these comments were released, the CME Group FedWatch tool put the odds of a September rate increase at just 15 percent, down from 24 percent earlier in the day.

Brainard’s comments represent a noticeable change in tone – various Fed members have in recent weeks championed a near-term rate rise despite uneven US data and questions over the health of the global economy.

The Fed is now in media lockdown mode going into the Fed meeting on September 21.

In other data today, the German final CPI was as expected at 0 percent while the country’s WPI undershot at -0.7 percent as did German ZEW economic sentiment at 0.5 and eurozone ZEW economic sentiment at 5.4. But the eurozone employment change was a better-than-forecast 0.4 percent as was Italian industrial production at 0.4 percent.

The US NFIB small business index and the Federal budget deficit are due later this afternoon.

“The path of least resistance for the base metals seems to be to the downside for now but there seems to be some bargain hunting along the way. Whether the better-than-expected Chinese data is enough to instil more confidence remains to be seen,” William Adams, FastMarkets’ head of research, said.

“On balance, we would look for the metals to consolidate but they may test support in the process. We are not overly bearish and the better Chinese data may well stop the recent correction from extending too much further, especially in the likes of copper where prices have pulled back to this year’s up-trend line,” Adams added.

In the metals, copper recently traded at $4,679 per tonne, up $31 on Monday’s close. Business has been slow – only around 5,000 lots have changed hands on Select so far.

Stocks fell a net 825 tonnes to 353,375 tonnes and cancelled warrants increased 1,500 tonnes to 56,375 tonnes.

Aluminium at $1,576 was $8 higher – stocks fell 1,800 tonnes to 2,188,250 tonnes – and nickel at $10,100 was up $20 after stocks slipped 24 tonnes to 367,728 tonnes although cancelled warrants fell 3,126 tonnes to 118,896 tonnes.

Lead at $1,906 was up $24, with stocks unchanged at 187,850 tonnes. Tin climbed $100 to $19,150 – stocks here were likewise unchanged.

Zinc traded recently at $2,278, up $16. Stocks fell 150 tonnes to 447,800 tonnes. Steel billet, cobalt and molybdenum were neglected.

(Additional reporting by Vivian Teo, editing by Mark Shaw)