LME base metals ended the year on a positive note, with Lead and Zinc prices top-performing the complex. During December, base metals, barring Lead traded on a listless note as market participants remained nervous about fiscal health scenario in U.S. There were concerns that if fiscal cliff remains unresolved, it could hamper the growth in the world's largest economy. However, improving macro economic scenario in China and US provided considerable measure of support to the complex. Meanwhile, lead prices have exhibited impressive resilience, underpinned by escalating demand from automobile battery makers.
At the onset of 2013, base metals have commenced the year with handsome gains, as bulls sought substantial encouragement from the mitigating concerns regarding US fiscal cliff. US legislators have managed an agreement on the fiscal cliff deal. In this regard, the House of Representatives and Senate struck a deal to avoid the fiscal cliff. The deal consists of keeping most of the existing tax cuts intact except on individuals making over US$400,000 or households making US$450,000 per annum. Nothing much is done on the spending cuts, which have been delayed for two months, as it seems that the Senate wants to buy some time on this. Rebound in Chinese manufacturing activity has also provided a shot in the arm for the bulls. Recent flow of macroeconomic numbers in China suggests that the country’s manufacturing sector continues to expand. We infer that an incremental government spending on infrastructure projects is aiding such growth. In addition, China’s trade surplus has widened sharply in December, aided by a strong growth in the country's exports.
In Europe, Euro-area manufacturing output continued to contract in December, although the extent of the decline has moderated. The Euro-area GDP has already contracted for two successive quarters and the European Central Bank is calling for overall contractions of 0.5% and 0.3% in both 2012 and 2013. U.K. manufacturing unexpectedly expanded at the fastest pace in 15 months in December as domestic demand improved.
In US, manufacturing activity remains in expansion territory. In addition, there has been improvement in the labour market. Housing demand and sales continue to improve as well. The nation’s third quarter GDP growth rate was upwardly revised to 3.1%, as compared with the prior estimate of 2.7% growth.
We believe that the non-ferrous metals will remain very much a China story, as prices would be more receptive to the macroeconomic developments in the world’s largest metals consuming nation. In spite of the looming uncertainty over the spending cuts issue in US, the complex should do well as the most of the economies across the globe are witnessing signs of bottoming out.
Base Metals Snapshot
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