Industrial commodity prices headed lower, analysts say

Concerns surrounding China had emerged again, analyst David B.Wilson said in a research note sent to clients.

A boost to the country's manufacturing sector had come with a price-tag of c$1trn in new credit over the first quarter of 2016, yet the effects of those credit-easing measures were short-lived, purchasing managers' indices for April revealed.

Negative sentiment towards the commodities space had also been helped by Chinese bourses' efforts to reign-in speculative flows.

"While prices are unlikely to breach January lows, as highlighted in previous notes, we do expect some level of correction to persist over the next month."

For his part, strategist Andrew Garthwaite at Credit Suisse was telling clients that: "Our 'economic momentum proxy' is mildly positive and only one of our four hard landing indicators is flashing red (PPI deflation). The other hard landing indicators – land sales and property turnover, the loan-to-deposit ratio and corporate bond / 2-year note yield – do not appear worrisome yet.

"Ultimate fiscal flexibility has, we think, been exaggerated but monetary flexibility has not (China has net foreign assets). Current policy is mildly positive on our proxies but Dong Tao, CS China Economist, highlights that the May 9th People's Daily implies a more negative change of focus for growth."

In the same note Garthwaite reduced the size of his 'underweight' stance on mining, acknowleding a "more positive story on steel and zinc". He also upgraded luxury from 'underweight' to 'overweight'.

Nonetheless, he added: "The fundamental problem, however, is that a large number of indicators suggest industrial commodity prices should fall."