Prices of Metals Climb as Free Trade Zone Backed by China
On Monday, prices of metal rallied despite the dollar strengthening as the president of China pledged to give support to an area of free trade in the region of Asia-Pacific that boosted the optimism over demand in China.
Typically, when there is a strong U.S. dollar is weighs down prices of metals due to it making sales to China as well as other emerging markets expensive.
However, the positive sentiment experienced around China as well as hopes that Donald Trump the President-elect of the U.S. will increase spending on infrastructure, pushed metal prices higher.
Copper futures for three months on London’s Metal Exchange were up 2.5% to reach $5,560 per ton, while zinc was up 2.1% and nickel climbed 3.2%.
One analyst in London said that normally a stronger dollar is not good for prices of commodities, but at this time, that trend has changed because the strength of the dollar is due to hopes of the economy in the U.S. becoming better.
Hopes for freer flows of trade and prospects of more imports by the largest consumer of metals in the world, China, buoyed the sentiment of investors, said the analyst.
On Saturday, during a speech at the Lima, Peru Asia Pacific Economic Cooperation meeting, Xi JinPing the President of China said the Chinese government would back a Free Trade zone in the Asia-Pacific and is moving ahead with the 16-country Regional Comprehensive Economic Partnership.
China, currently the second largest world economy behind just the U.S., could take a larger role in global trade if Trump’s administration exits accords that are U.S. led said analysts.
Over the upcoming five years, China is expected to import over $8 trillion in goods, as well as invest $750 billion outside of its borders said Xi.
Trump, leading up to the presidential election in the U.S., said he would review the different trade pacts and would impose tariffs across the board on imports from China, which is a larger exporter to the U.S. of metals.
Metal prices were up and down the last two or three weeks. The majority of prices of base metal including aluminum, copper, lead, nickel and zinc plunged when Trump was declared the winner of the election. However, since that time, prices have reversed their course.
Analysts are expecting prices of metal to remain volatile in the short term. If the Federal Reserve in the U.S. increases in December interest rates, the rally for prices of metals would like become capped by the strength of the dollar.