Singapore 23/09/2016 - Interest in base metal futures among investors is likely to remain low in the next year or so because their appeal has waned due to a slowdown in the Chinese economy, Bonnie Liu, CEO of GF Futures (Hong Kong) Co, said.
There is a lack of interest and confidence in Chinese economic growth and, because China accounts for around 45 percent of global demand for base metals, interest in base metals futures has declined, Liu said in a panel discussion at the FOW Trading conference here on Thursday.
"The new norm in China will see demand growth slow in the next three to five years. For interest to come back to base metals, you need to see a big bull market but that is unlikely to happen in the next one to two years," she said.
The Chinese economy is moving in an L-shape - falling before levelling off. An economic recovery and the elimination of overcapacity in the country will both take time, she told FastMarkets on the sidelines on the conference.
In addition, range-bound trading for base metals such as aluminium and copper, which are trading around cost curves, has also put investors off, Liu added. Base metal prices have risen this year but it is mainly due to supply cuts, Liu noted.
"[But] once prices increase, supply comes back," she said. "Like for aluminium, with more supply coming onstream, how much can price increase? For a big trend to develop in the [base metals] market, it must be demand driven. Now it’s just range-bound trading. Interest in base metals at these prices will not be much."
The decline in base metals futures is evident in the decline in London Metal Exchange trading volumes so far this year and also on the Shanghai Futures Exchange (SHFE), particularly for copper, Liu noted.
In August, total trading volumes in SHFE copper was 8.57 million lots compared to 15.5 million lots in the same month a year ago, according to exchange data.
Chinese investor interest has also been diverted to energy and forex futures. Oil prices have rebounded substantially to $50 per barrel and forex volatility - including that for the dollar,the euro, and the yuan - has been huge this year, far exceeding price movements in base metals, she added.
"The market is not scared by prices going up or down but it's scared by the lack of volatility. And base metals now do not have volatility. Copper is going up and down around $4,600-5,000. It's pointless really," Liu added.
The LME three-month copper price was last at $4,853 on Friday on Select, unchanged from the previous day's close.
(Editing by Mark Shaw)