Base metals rise as China spends

Zinc, nickel and copper on the rise as China makes money available.

08 January 2019 | Business

Nampa / Reuters and Fin24

Base metals moved higher yesterday, led by steel-linked nickel and zinc, after top metals consumer China took measures to boost lending following a contraction in industrial growth and focus shifted to its trade talks with the United States.

China's central bank on Friday said it was cutting reserve requirement ratios (RRRs) - the amount of cash that banks have to hold as reserves - for the fifth time in a year, freeing up US$116 billion for new lending as it tries to avoid a sharp economic slowdown.

Helen Lau, an analyst at Argonaut Securities in Hong Kong, said a relief rally had been triggered by the RRR cut and dovish comments from the U.S. Federal Reserve.

"Many metals and metal stocks have dropped a lot and reached attractive valuation," she wrote in a note, while cautioning that markets ‘should remain volatile’ before more certainty emerges.

FUNDAMENTALS

* ZINC: The metal used to galvanise steel rose 1.5% on the Shanghai Futures Exchange to 20,545 yuan (US$3001.20) a tonne, tracking gains in Shanghai rebar on expectations looser lending would stimulate growth in industries like construction. London Metal Exchange zinc added 0.8% to US$2457.50 a tonne 0409 GMT, having touching its weakest in more than three months on Thursday.

* NICKEL: Nickel, used to make stainless steel, climbed as much as 2.5% in Shanghai to 91,100 yuan a tonne, its highest since Dec. 19. LME nickel edged up 0.5% to US$11,160 a tonne.

* COPPER: LME copper shrugged off an early dip to edge up 0.1% to US$5,921.50 a tonne after touching its weakest in around 18 months last week. ShFE copper jumped 1.3% to 47,360 yuan a tonne.

* FED: Federal Reserve chairman Jerome Powell on Friday sought to ease market concerns that the US central bank was ignoring signs of an economic slowdown, saying he was aware of the risks and would be patient and flexible in policy decisions this year.

* TRADE: US President Donald Trump said on Sunday talks with China were going very well and that weakness in the Chinese economy gave Beijing a reason to work toward a deal to resolve the Sino-U.S. trade row that has roiled markets.

Earlier in the week Apple cut its revenue outlook for the first time in almost two decades, citing weakness in the Chinese economy as one of the reasons.

Deputy US Trade Representative Jeffrey Gerrish leads a delegation for trade talks with China yesterday and today, China’s commerce ministry said in a statement. It is the first face-to-face negotiations since presidents Donald Trump and Xi Jinping agreed to a 90-day truce in their trade war last month.

Meanwhile, Fin24 reports that emerging-market stocks and currencies closed out the first week of 2019 on a high note. Both posted the biggest one-day gains in a month on Friday, following China’s move to loosen monetary conditions and the US Federal Reserve signalling flexibility on the outlook for rates. Optimism spread across financial markets on Friday after data showed a spike in US December hiring.

This was despite last week’s resignation by South African Reserve Bank deputy governor Francois Groepe, leaving only five people on the rate-setting panel.

Groepe resigned with effect from 31 January according to a statement from the bank. The South African Reserve Bank (SARB) issued the statement on Wednesday afternoon.

Groepe had tendered his resignation in December, to pursue "outside opportunities", the statement read.

Groepe had served at the SARB for 14 years, seven of which he served as a non-executive director and the remaining seven as an executive.

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