China's disappointing credit growth weighs on metal prices

Metal prices remain under pressure. At the beginning of the week, China's disappointing credit growth in July and the further increased risk of a default by a major property developer  weighed on prices. This morning's data on retail sales, fixed-asset investment and industrial production also fell short of expectations: the latter grew by only 3.7% year-on-year in July instead of 4.3% as expected, compared to 4.4% in June. China's central bank surprisingly acknowledged the weak economic figures with another interest rate cut, the biggest since 2020, which probably prevented a worse market reaction: After all, industrial metal prices have stabilised after the slide of the last few days.

In the area of raw materials, China's production figures - already broken down to this extent - were rather robust. Aluminium production even recovered further: at almost 3.5 million tonnes, China's smelters produced almost as much in July as at the record high last August. In absolute terms, production rose slightly compared to the previous month, but on a daily basis this corresponds to a small minus. The main growth driver was Yunnan province, the fourth-largest region in China's aluminium production, after power restrictions were lifted thanks to heavy rainfall, bringing an estimated 1.4 million tonnes of capacity back on stream. In other regions, production probably had to be reduced due to maintenance measures. The good production news in the largest producer country by far should be rather negative for the aluminium price, as China's demand is currently rather weak and a build-up of stocks or higher exports are to be expected. However, since the aluminium price has already fallen significantly again in the first half of August and is now only just above the July low, the potential for a correction has probably already been largely exhausted.

Source: Commerzbank Research, Photo: Fotolia