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Metals Should Remain Weak on Slowed Inflation and Contraction of Industrial Output
May 11,2012 18:00CST
data analysis
Base metal market should continue to follow a weak trend in the near term.

SHANGHAI, May 11 (SMM) – The consumer price index (CPI) rose 3.4% year-on-year in April, while the Producer Price Index (PPI) fell 0.7% in April from a year earlier according to data released by the National Bureau of Statistics (NBS) Friday. The eased inflation and continued contraction of industrial output may exert profound influence on the macroeconomic condition, and in turn, impact base metal markets.

According to China Customs, China’s domestic import and export value during the first four months were USD 1.16718 trillion, up 6% YoY. Exports were USD 593.24 billion, up 6.9%, while imports were USD 573.94 billion, up 5.1%, with trade surplus of USD 19.3 billion. Domestic import and export value in April alone was USD 308.08 billion, up 2.7%. Exports were USD 163.25 billion, up 4.9%, while imports were USD 144.83 billion, up 0.3%, with trade surplus of USD 18.42 billion. The seasonally adjusted YoY growth rates for China’s foreign trade, exports, and imports in April were 6.1%, 7.2% and 4.8% respectively. Of major trade partners, China’s bilateral trade with the EU and Japan grew slowly in April, while total bilateral trade value with US reached USD 146.1 billion, up 9.2%. Foreign trade with Russia and Brazil grew fast by 27.7% and 14.4% respectively. Given economic downturn in Europe and Japan, China’s foreign trade will not grow rapidly in the short term. The slipping trade data in China reflected its deeper economic slowdown, while the slowed inflation may give more room for fine-tuning. Thus, it is possible for policy maker to further adjust monetary policy. Market expects China’s central bank may adjust reserve requirements in early June to inject liquidity, but the influence on market will be limited in short term.

According to data from the US Labor Department, the number of non-farm employment in April increased by 115,000, the smallest increase since October 2011, compared to the 170,000 expected. US unemployment rate continued to fall to 8.1%, the lowest since January 2009, compared to 8.2% expected. Investors believe job markets did not improve given worse-than-expected non-farm payrolls, triggering doubt towards US economic outlook. Disappointing economic data will negatively affect stocks markets and commodity, so the market believes consumption will not improve. Markit reported PMI in the service industry for April was 46.9, compared to the initial 47.9 announced two weeks ago, and much lower than expected. The PMI dropped most sharply since October 2008, indicating European manufacturing sector is still gloomy. Since the newly-elected French president Hollande, is not as decisive as Sarkozy in cutting deficit, market feared this may negatively affect the relationship between Germany and France and impede the resolution of European debt crisis. With the release of general election result, risk aversion pushed up the US dollar index. On the other hand, the vote result of Greece’s parliament shows the two major parties of Greece in support of tightening policies failed to win the majority to build a coalition government, doubt on whether Greece can fulfill the work required for the bailout package. And it is uncertain if Greece will implement the bailout plan which is almost agreed. The results of general election in the two European countries will exacerbate the European debt crisis.

Given lower expectations on the introduction of QE3 policies and worsening situation in Europe, the US dollar index will remain strong. Plus the pallid overseas demand and sluggish domestic consumption, base metal market should continue to follow a weak trend recently.

base metal
Chinese economy
Chinese foreign trade

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