Higher Industrial Profits Drive up Base Metal Prices

SHANGHAI, Dec. 27 -- On Thursday morning, the National Bureau of Statistics released that industrial profits for November totaled RMB 638.5 billion, up 22.8% YoY, up 2.3 percentage points higher from a week earlier. Following the data release, SHFE base metal prices advanced across the board.LME copper prices also surged to hit USD 7,900/mt during the Asian trading hours on Thursday, up 1.5%.

China’s upbeat economic data boosted base metal prices amid unclear outlook of the US fiscal financial cliff. It is believed that higher industrial profits showed that operation in China’s medium and small enterprises have been improving.

However, the concern over the US fiscal cliff will continue to haunt base metal market. Apart from concern over the US fiscal cliff talk, the upper limit of the US debt also weighed on market.ccording to US Treasury Secretary Geithner, the USD 16.394 trillion upper debt limit will be hit on December 31st. Although the Ministry of Finance took measure to postpone the default, no significant progress was reported. 

The US lost AAA sovereign credit rating due to default risk in August 2011. Whether or not the upper limit of debt can be limited shall depend on the fiscal cliff talk.
In general, Thursday's increase may not be sustainable, and investors should be aware of other risks.