Why industrial commodity prices are under pressure
Base metals prices retreated from their January highs as Chinese economic woes threatened the demand from the world’s largest commodity consumer. Fears of excess supplies and the US Fed’s rate hike policies also added pressure on prices throughout the period.
In the benchmark LME platform, prices of the most used industrial commodities like copper and aluminium shed by more than 37% and 17%, respectively since their January highs.
Meanwhile, zinc prices lost 27% while lead prices were almost unchanged. A similar move was witnessed in the domestic MCX futures, but losses were slightly limited due to weak domestic currency.
China is the world's largest consumer of base metals.
The construction industry in the country is the largest consumer of copper, aluminium, and zinc, while the manufacturing industry uses significant amounts of nickel and lead. However, signs of deteriorating economic activity and credit flows in the country are casting shadows on the demand prospects of the metal complex.
Since the start of the second half of the year, China’s economic releases missed expectations as the economy continues to show uneven recovery.
This has raised worries that the world’s most metal-consuming country will slide into deflation. China’s growth target for the year is 5% which is the lowest in decades.
The producer price index, which is heavily driven by the cost of commodities and raw materials, fell for a tenth consecutive month in July.
