China, US demand expected to sustain metals rally

Thursday, November 24, 2016

Economic growth in the US and China will continue to fuel a rebound in metals prices, according to Peru's largest private pension fund.

China is on track to maintain annual growth rates of 6-6.5%, while US president-elect Donald Trump is expected to increase public spending, said Renzo Castellano, CIO of Colombian-controlled Grupo Sura's AFP Integra unit.

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"The increases [in metals prices] in the past two weeks have been more aggressive than they should have been," Castellano, who manages a US$13bn fund, told BNamericas. "But the markets believed the price cycle had hit bottom."

Copper prices have jumped 24% over the past month to about US$2.60/lb on the London Metal Exchange, while zinc has risen 18% to US$1.20/lb and lead 11% to US$1/lb.

China is the world's largest copper consumer, while Peru stands to gain from higher demand for base metals from Trump's plan to upgrade his country's infrastructure, according to the national mining society (SNMPE).

"While the outlook for financial markets remains unusually uncertain... we don't expect any major trade protectionist measures," Capital Economics analyst Edward Glossop wrote in a report. "Most currencies could nudge a bit higher against the dollar over the next 12 months as the economic outlook improves and external vulnerabilities continue to diminish."

Peruvian miners including Hochschild Mining, Southern Copper and Minsur are dusting off projects in the light of the market rebound, while Peru and China this week signed memorandums of understanding for half-a-dozen Chinese-owned mining projects.

Peru, the world's largest copper, zinc and tin producer, has lined up US$55bn in mining investment commitments over the next decade, according to the energy and mines ministry (MEM).

Peru´s metals exports rebounded 10% to US$15.2bn through the first three quarters as gold, silver and lead prices all rose, according to the central bank.