Metals fret over Chinese demand

WALL Street was off to the races at the end of last week after Fed chairman Ben Bernanke sounded very reassuring about the outlook for 2010. In fact, one of the US financial websites ran a direct quote from Helicopter Ben (who, incidentally, has certainly lived up to his vow to cover America in new dollar bills). That quote went: “Our forecast is for moderate but positive growth going into next year. We think that by the spring, early next year, that as these credit problems resolve and, as we hope, the housing market begins to find a bottom, that the broader resiliency of the economy, which we are seeing in other areas outside of housing, will take control and will help the economy recover to a more reasonable growth pace.” The only fly in the ointment is that he said this - not last week - but in November 2007, just before the financial crisis began. This week, also, we have New York economist Nouriel Roubini again veering off into pessimistic mode, saying we’re now in danger of having a double-dip recession. His worry is that policymakers are caught in a quandary of their own making. They either try and repair national balance sheets and pay down debt (higher taxes and cut spending) which would send economies back into decline; or they keep spending and let inflation off the leash. We are already seeing signs of this, he says, with oil, energy and food prices now rising faster than economic fundamentals warrant, and could be driven higher by excessive liquidity chasing assets and by speculative demand. In fact, when you spend a bit of time reading all the economic commentaries, you are left with - apart from general bewilderment given the range of forecasts - with a choice between nighmares: deflation or stagflation. None of this is a good look for metals. We have a report overnight that a large Minnesota commodity trading hedge fund, Galtere International, is saying that China’s copper imports in August dropped to 406,612 tonne, a 15 per cent decline from June. This strongly suggests that copper’s recent extended gains are living on borrowed time. What if other figures emerge that show China stockpiling of other metals - aluminium, for example, or nickel - is showing a similar downward trend? Watch out below, that’s what. David Thurtell at Citigroup’s London office wrote this overnight: “Markets continue to fret over the sustainability of China’s recovery”. He was commenting on the falls last night at the London Metal Exchange, with lead the only member of the base metals complex to kick the downward trend. Chinese premier Wen Jiabao didn’t help sentiment with his latest comments that his country’s excess industrial capacity may limit growth and that authorities could not be “blindly optimistic". So far, however, the jitters have been kept in check. BNP Paribas crunched the figures for last week on the LME and report that lead was the strongest performer, up 9.8 per cent over the five days to Friday, with zinc in second place with a 5.4 per cent gain. Only aluminium declined over the week. BNP confirmed that Chinese imports of refined copper and aluminium fell in July, which gives credence to the Galtere info about August imports. BNP says it appears that some idle capacity in China has been restarted, especially with nickel pig iron, aluminium and zinc. “As such, and combined with an official end to restocking in China, it remains to be seen whether we will see ongoing high levels of Chinese imports,” the BNP report of London comments.