Uncertainty over China, global growth hit prices

LONDON — Most industrial metals prices fell on Friday as uncertainty about trade talks and global growth outweighed Chinese plans to use government levers to underpin growth.

News of a tax cut for China’s industrial sector sent zinc prices and spreads lurching in Shanghai.

Premier Li Keqiang promised broad policy steps to prevent a sharper slowdown for the world’s second-biggest economy, the biggest consumer of base metals.

“I think that has helped to stabilize the sentiment and calm the market, but there is still some macro uncertainty lingering, so we’re not seeing a massive rally in the metals prices,” said Xiao Fu, head of commodity market strategy at Bank of China International in London.

“Although the trade talks are progressing, we still don’t know the outcome and there’s some worry about the general weaker global GDP outlook.”

Benchmark aluminum on the London Metal Exchange fell into the red and shed 0.3% to $1,897 a ton in closing open outcry activity. It earlier touched $1,914, the strongest since March 4.

Zinc prices fluctuated wildly and Shanghai Futures Exchange (ShFE) spreads ballooned after Mr. Li said a planned cut in valueadded tax (VAT) on China’s manufacturing sector, which includes non-ferrous metals, would take effect from April 1.

Some speculators on the ShFE had previously bet that the planned cut in VAT would be implemented on May 1, increasing the backwardation on metals, including copper and aluminum.

The backwardation between the March and April ShFE copper contracts spiked to over 1,000 yuan a ton, the highest since May 2014, after Mr. Li’s comments. The spread between April and May , previously in a steep backwardation, immediately flipped into a deep contango.

LME zinc spiked two percent to $2,882 a ton, the highest since July 2, immediately after Mr. Li’s comments, before profit-taking saw the metal used to galvanize steel drop 1.2% to close at $2,790 a ton. It still managed a three percent gain last week, its best week in six, as investors worry about tight stocks.

Low inventories and fears of production outrages has spurred a strong backwardation in LME zinc, Jinrui Futures said in a note.

The premium for cash zinc over the three-month LME contract stood at $45.15 on Friday, after it hit $55 a ton a day earlier, the highest since early January.

LME copper inventories have surged 67% over the past two days. LME copper finished 0.4% firmer at $6,432 a ton.

LME nickel finished 0.4% firmer at $12,930 a ton, lead slid 2.5% to $2,062 and tin fell 0.5% to $21,075. —