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Base metals lose 12-27% value on trade war fears in last two months

The decline in base metals' prices is set to affect the profitability of their primary producers in the July-September quarter

Dilip Kumar Jha  |  Mumbai 

Base metals to remain bullish in 2018
Fees that miners pay to smelters to process their metal have jumped

have lost as much as a fourth of their value in the last two months owing to weak global demand in the wake of escalating trade war between the US and China.

The index (LMEX) on the benchmark (LME) has slumped 17.5 per cent since the drawdown started on June 7, this year. Zinc led the fall in complex, with 27.3 per cent decline in its price to $2,338 a tonne, on the LME on Thursday. Lead and followed suit with a sharp 21.3 per cent and 19 per cent fall in prices, respectively, since June 7.

Other metals such as and are also down by 17 per cent and 14 per cent, respectively.

The decline in base metals' prices is set to affect the profitability of their primary producers in the July-September quarter. With growing cost of production, primary producers were earlier seen heaving a sigh of relief owing to rising metal prices, which had rebounded after a prolonged cyclical downtrend.

"Base metals continues to trade weak, coupled with the and the strengthening US dollar, that powered to a 13-month high on concerns over the ripple effects of a slide in the Turkish lira, while global trade disputes continued to sap demand. DXY (US Dollar index), which took its cue to climb from concerns over the plunging Turkish and the Russian rouble was later bolstered by strong US data that cemented expectations for two more interest rate hikes this year," said Navneet Damani, associate vice-president, Motilal Oswal Securities.

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Apart from that, the weaker than expected Chinese data also weighed on the weak metal prices. Fundamentals for now seem to have taken a backseat, and macro woes are indicating sluggish demand.

"We remain cautious on a few metals, with expectation of some pullbacks after the recent price slide. Focus will largely be on the meet between Chinese commerce ministry and the US team over later in the month, which could provide some medium term trend to the metals complex," said Damani.

The decline in base metal prices started in April, weeks after the US imposed 10 per cent customs duty on imported from China and India. Their prices saw some recovery only to fall again from June 7. Since then, base metals have continued their downward spiral, with an intermittent marginal recovery.

"Appreciating dollar against global major currencies is the key reason for the fall in base metals' prices. Coincidently, there has been an excess supply over demand as anticipated earlier, which supported base metals' downward move. Historically, has been a proxy to the global economic growth. Hence, the demand for has been slow in tandem with global economic sentiment. This concern is now cropping up to affect its demand," said Jayant Manglik, President, Religare Broking.

Experts, however, believe that the ongoing geo-political tensions in and sanctions on Iran have reduced alternative investment appeal for

In terms of fundamental drivers, China's economic indicators have failed to enthuse the China's manufacturing activity fell slightly in July on weakness in the export sector.

Prior to that, China's May economic data, including industrial production, disappointed the In the first five months of 2018, China's fixed asset investments rose 6.1 per cent year-on-year, the slowest growth in two decades.

Fees that miners pay to smelters to process their metal have jumped. Treatment and refining charges (TC/RCs) have surged to $86.10 per tonne from $66 in late March, the highest since mid-December, suggesting little pressure on supply of copper concentrate.

Meanwhile, depreciating rupee has restricted Indian metal consumers to take full benefit of the fall in the global metal prices. Indian primary metals producers, however, have witnessed a pressure on export realisation.

First Published: Sun, August 19 2018. 05:32 IST
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