Base metal prices fall on PBOC rate rise leaving analysts with mixed views on outlook
Mining capex at lowest level in a decade, and lack of investment in new growth over past three years has left firms with limited ability to increase volumes
Base metal prices have been hit hard by China’s surprise interest rate rise, but analysts have mixed views on whether prices will rise later in the year as the country continues down its route of supply side reform.
The People’s Bank of China, the central bank, raised money market rates across the board on the first working day in the Year of the Rooster on Friday, after a week-long holiday for the Lunar New Year.
The seven-day repo rate, the major interest rate between the central bank and commercial banks in the interbank market, increased to 2.35 per cent on Friday from 2.25 per cent before the start of the holiday.
Commodities prices were hit hardest as the tightening of monetary policy in China has led to selling pressure across all types of base metal, according to Matt France, head of institutional sales, metals (Asia) at Marex Spectron, a UK based commodities broker.
“Those hoping that China would give us a boost at the start of the new lunar new year have been left very disappointed,” France said in a research note.
The PBOC rate rises have led Chinese commodities traders back to their trading rooms to sell, France said, with iron ore, rebar and coking coal all down 5.5 per cent to 7 per cent, while copper, nickel and zinc all tracked lower too, with more sellers then buyers.
