Metals index signals weak outlook

Indicator meant to give nation more influence in global price formation

China has started releasing a monthly nonferrous metals conditions index in a move to increase the nation's influence in setting global commodity prices.

The index for March, announced on Wednesday, was 46.7. The metals index is constructed much like the Purchasing Managers' Index: A reading above 50 indicates improvement, while one below that point indicates worsening conditions.

The index is jointly compiled and released by the China Nonferrous Metals Industry Association, the National Bureau of Statistics and the Economic Daily newspaper.

Chen Quanxun, chairman of the association, said the index is intended to help the industry, companies and the government make decisions by giving a broad picture of conditions in the sector and acting as a leading indicator.

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Despite being the biggest producer and consumer of nonferrous metals, China doesn't carry much weight in global pricing, said Jia Mingxing, vice-chairman of the association.

"The domestic prices of lead, aluminum and zinc are below production cost, which is abnormal for the industry," he said. "Chinese companies are facing the combined challenges of falling prices, overcapacity and losses."

Jia added: "The copper price is likely to keep falling. Some uncompetitive aluminum production facilities are being eliminated from the market, but overcapacity persists."

The profitability picture in the sector varies widely. State-owned enterprises are losing money to a greater degree than small, private ones.

According to Jia, 2,339 companies in the industry reported deficits for the first two months of the year, accounting for 26.9 percent of all companies in the industry. The profit for the whole industry for the first two months declined 9.3 percent year-on-year to 15.54 billion yuan ($2.5 billion).

"We hope that the monthly index can gradually influence overseas and domestic prices and help Chinese companies to make better market judgments," said Jia.

Chen said a seasonal climate index for China's nonferrous metals industry had been compiled for the past five years and the association decided to publish a monthly index to better reflect industrial and international economic changes.

Pan Jiancheng, deputy director of the China Economic Monitoring and Analysis Center of the NBS, said the nonferrous metals industry has typical regular cycles that are closely correlated with international economic conditions.

To support the industry's development, the association plans to release indexes for individual metals such as copper and aluminum in the future.