Singapore 21/09/2016 - The stabilisation of the Chinese economy and reduced expectations of US interest-rate rises will support the non-ferrous metals market, the China Nonferrous Metals Industry Association (CNIA) said.
But weak fundamentals as well as uncertainties in the market are checking a rebound in the complex, the industry body cautioned in a report on Wednesday.
Several economic indicators - including industrial production retail sales, fixed asset investment and overall imports - are showing signs of improvement, which bodes well for Chinese base metals demand, although some analysts are still cautious on near-term demand and the price direction of metals such as copper.
There are bright spots in the Chinese economy but there remain downside risks while it is still in an adjustment phase, CNIA said.
China's recovery has been uneven while the country transits from metals-intensive manufacturing to a more service-oriented economy and while the government carries out supply-side reforms to remove overcapacity in its zombie industries - the is particularly targeting the steel and aluminium sectors.
This capacity elimination could put more pressure on the Chinese economy in the short term, the association said. But coupled with strong real estate sales in the second and third quarter, it could lead to an improvement in the non-ferrous metals markets' supply-demand balance, it added.
Still, tackling overcapacity will be a long-term process, demand will struggle to rebound rebound and a there has been a lack of improvement in the supply-demand imbalance, keeping non-ferrous metal prices low for an extended period, it said.
Copper on the Shanghai Futures Exchange has rebounded from as low as 33,230 yuan per tonne in November last year but it continues to meet resistance at 39,000 yuan. It has trended downwards since mid-July, with the most active November contract closing at 37,300 yuan on Wednesday, up 70 yuan from its previous close.
Copper demand is widely seen as a barometer for the health of the Chinese economy due to its use in construction, wiring and cables.
(Editing by Mark Shaw)