Saturday, 04 April 2015 11:04

Decelerating China Growth May Drag Down Oil and Metal Prices

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China Manufacturing PMI is Survey of about 430 purchasing managers which asks respondents to rate the relative level of business conditions. The PMI drops to 49.6 for December after 5 months consecutive expansion.

According to the data compiled by Markit Economics output, quantity of purchases and stock of finished goods increased while new orders, new export orders, employment, output prices, input prices and stock of purchases declined. Falling domestic demand could be a major cause behind the dampening manufacturing growth. Earlier this month China Federation of Logistics and Purchasing reported fall in Manufacturing Index to 51.0 from earlier 51.4. GDP and Industrial Production also fell below estimated.

In Industrial Metals China is the largest consumer that made Copper and Nickel drop by 0.86% and 0.3% after the data release. Crude oil too fell by 0.27% as China accounts for 11% of global oil consumption and second largest consumer after U.S.

On the other side inventory of Tin and Lead are down may keep high price in the market while stock of Zinc and Nickel are high may keep downside pressure on prices. Copper supply is expected to reach at 7 million tonnes by 2020. This oversupply may squeeze metal prices. In Crude oil, demand from China is likely to fall at 4% in this year from 12.6% gain in 2014. This too will adversely affect the oil prices.

Decelerating growth in China may keep crude oil and base metals prices weak. Prevailing high cost of fund is expected to fall production as well as buying in the industry as high interest rates may reduce earnings for market players. We are expecting that PMI release on 1st Feb may fall near to 50.0 from the present reading of 51.0


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