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One could read the said lack of interest as a symptom of pre-holiday slowdown ahead of the upcoming Chinese New Year. On the other hand, since China is known to be well stocked, it would be a downside risk to prices i..

02 Feb 2013

LONDON (Commodity Online): In base metals, unless the demand picks up after the Chinese New Year holidays, downside risks can emerge, Barclays has said in a report.

“Growing optimism about global growth and the related risk-on environment could push metals prices higher in the short term. However, Chinese participation is noticeably lacking and, unless it returns after the New Year, would be a downside risk.” the report noted.

One could read the said lack of interest as a symptom of pre-holiday slowdown ahead of the upcoming Chinese New Year. On the other hand, since China is known to be well stocked, it would be a downside risk to prices if it remained absent even after the national holiday.

Illustrating the lack of Chinese interest currently is the failure of SHFE prices to keep up with this LME rally. As a result, all the import arbs are firmly closed and have been for most of December 2012 and 2013 so far.

That this move is more to do with the broader risk-on environment than specific base metals market fundamentals is illustrated by the highest copper prices since October 2012 despite a 75% increase in LME stocks since then, including a rise of 35Kt this week.

Growing optimism about global growth, particularly in China and the US, has spurred short covering across the base metals in what is becoming a risk-on environment.

In the base metals, this recent rally has been fuelled more by CTA short covering than discretionary investor or corporate flows.

Nevertheless, it may trigger a further move higher in the short term if economic data remain supportive amid a lack of negative headlines from Europe.


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