Base metals tick higher on positive news from the US and China

Base metals are showing signs of recovery this week, helped by US economic data and China’s infrastructure spending.

A sharp decline in oil prices with WTI losing $7/barrel over the last five trading sessions is also providing support as it is affecting US treasury yields, and indirectly the strength of the dollar.

US GDP data stronger than expected

Base metals prices are closely linked to GDP performance and strong GDP growth correlates very closely to higher metals demand from construction, industrial production, and retail.

Not surprisingly prices inched higher after US third quarter GDP data came in stronger than expected and we anticipate these numbers to continue to affect the market over the next few trading sessions.

US GDP rose 4.9% from the same quarter last year, recording the strongest increase since the last quarter of 2021 despite a long stretch of interest rate increases. The strength of the recovery in the US coupled with similar growth in China will provide solid support for base metals and will have implications for demand over months to come.

China economic growth expectations

Over the last four to six weeks market watchers have turned increasingly negative on China and its economic growth expectations but digging deeper into the actual data shows that the slant is unnecessarily negative, at least in respect to industrial metals. The world’s second largest economy has grown at 4.9% in the third quarter, the same pace as the US, and following a series of supportive measures such as relaxing property market curbs and cutting reserve ratio requirements is on track to grow by between 5.2% and 5.3% this year. While this is below the pace of growth in the early 2000s and 2010s it is nevertheless solid and more aligned with the speed of expansion of a developed economy.

In comparison Europe’s growth remains pallid, as does the UK’s (in the second quarter 1.1% and 0.4% y-o-y, respectively).

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Also this week, China said it plans to issue $137 billion worth of bonds to finance infrastructure spending and flood mitigation efforts. While this is relatively small compared with economic decisions earlier this autumn it will still be supportive of metals such as copper, aluminium, zinc and nickel.

Base metals: Nickel, Zinc, Copper, Aluminium

Nickel in particular seems poised for another move higher before the end of the year after analysis of Indonesian production, one of the largest in the world, has shown that the quality of the mined ore is gradually declining while concerns over the environmental impact of the way the metal is mined are increasing. The outlook for next year, however, is muted as the nickel market is set to be in surplus.

Zinc is somewhat negatively affected by Chinese regional governments imposing restrictions on steel production because of high levels of carbon emissions. Zinc is used for galvanising steel, which in turn is used in construction and infrastructure.

The next support level for copper is at $7,856 a tonne and resistance at $8,111/t. The metal is currently trading between $7,960/t and $8,047/t.

Support for aluminium sits at $2,160/t while resistance is at $2,249. Zinc support is at $2,384/t and resistance is at $2,550/t, and the two levels for nickel are at $17,930/t and $19,000/t, respectively.

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