Metals under pressure with Chinese growth outstrips forecasts

Base metals consolidated on the LME on Thursday morning after the heavy sell-off of the past 24 hours as bearishness unfolded after the release of Chinese figures showing its economy is growing faster than policymakers would like.

The complex has fallen in line with weak Asian equity markets despite robust Chinese economic data, which showed annual GDP growth in the world s top metals consumer jumped to 9.8 percent in the fourth quarter of 2010, defying expectations for a slowdown to 9.2 percent.

The country s consumer price inflation also fell to 4.6 percent, still stubbornly close to the two-year high of 5.1 percent hit last month.

The macroeconomic data rekindled fears among traders that Chinese authorities will need to make more aggressive efforts to contain the soaring price of goods and services, which could impair demand for metals in the region.

The mood has turned negative on the Chinese data, which suggests the country will continue to tighten monetary policy, William Adams, analyst at FastMarkets, said. Given that China is so important for commodity demand, it is not surprising that the metals are taking note.

China has raised the reserve ratio requirement it charges banks four times in two months, while lifting interest rates twice in the last quarter.

Copper set a fresh record high of $9,781 on Wednesday morning but profit-takers emerged in response to weak US equities and another large build in London inventories and the metal pared gains along with the other five most traded industrial metals before the LME close.

Thursday s economic data calendar brings initial jobless claims data at 13:30 GMT, with economists expecting 425,000 claims filed last week, while existing home sales and the Philadelphia Fed survey are due at 15:00.

MINOR CORRECTION

The prospect of higher Chinese rates may cause metals to pull back but some analysts believe that base metals are unlikely to fall too far given the prospect of rising interest rates - GDP growth indicates new consumer demand in the region at a time of relatively tight mine supply.

We view metals as vulnerable over the next few weeks but see a new risk on element to the market helping mining equities higher, John Meyer, analyst at Fairfax, said.

Copper traded at $9,496 after closing indicated at $9,570/9,575 on Wednesday - the metal also hit a record high of $9,781 yesterday. Copper inventories have climbed more than 32,000 tonnes since December 9 - investors have been attracted by backwardation since November 8 but stocks are still down from February 2010, when they hit a six-and-a-half-year high.

Aluminium was down $13 at $2,424, while stocks rose a net 650 tonnes to 4,486,325, the highest since the June 16, 2010.

Nickel dropped $64 to $25,591. Lead traded at $2,492, down $39, while zinc was $21 lower at $2,369. Zinc stocks rose to 711,550 tonnes, the highest since October 21, 2004, while lead inventories climbed for the fourth day, up 2,425 tonnes at 264,350 tonnes, the highest since May 11, 1995, due to a small movement into Singapore.

Lead stocks have jumped more than 50,000 tonnes or 24 percent this week, with metal being relocated for warehousing or financing purposes.

The global refined lead metal market was in surplus by 41,000 tonnes for the first 11 months of 2010, preliminary data compiled by the Lisbon-based International Lead and Zinc Study Group indicate. Over the same period, total reported inventory levels increased by 53,000 tonnes.

Tin was the most resilient metal on the complex, unchanged from yesterday s close at $26,900. Steel billet was indicated at $565/575, while cancelled warrants increased a net 1,495 tonnes.

In the minors, cobalt was indicated at $38,000/39,462 while molybdenum was bid but not offered. Cobalt inventories rose to 316 tonnes - the highest level since the exchange rolled out the contract in February last year.