China drags entire complex of industrial metals – report

Fitch cites a regulatory crackdown on tech companies, a weak real estate sector and lockdowns in place in major cities as having severely undermined economic activity, hampering demand for the metals.

Metal prices have been volatile over the year, torn between conflicting supply and demand factors. After covid-19 and the war in Ukraine, supply constraints combined with historically low stocks collided with concerns about China.

Fitch Reported Chinese shutdowns, weak economic data and the devaluation of the yuan – combined with an EU decision to exclude base metals such as aluminum and copper from sanctions against Russia – have returned sentiment to against the metals strongly bearish since last month, triggering a strong correction.

“A recent string of negative global economic readings have reignited growth concerns, driving industrial metals further down after a muted recovery attempt in early May. We highlight copper which has erased its gains and is now negative year-to-date,” said Fitch in a new report.

The analyst said copper inventories rose “healthily” as lockdowns and logistical constraints hampered demand. There are also signs that progress is being made to restart operations at the Las Bambas copper mine, which accounts for 2% of global copper concentrate production.

The analyst pointed to iron ore as an exception among the metals, with the metal seeing the least downward pressure in recent weeks.

“Although prices have fallen sharply since April, they remain high in historical terms, reflecting that metals markets remain generally undersupplied, as evidenced by global inventory levels,” said Fitch.

For example, nickel prices moved closer to their pre-conflict levels, correcting price distortions in March. Nonetheless, tight market momentum will support prices above 2020-21 levels over 2022-23 (as with base metals more generally), while low inventory levels will leave prices heavily exposed to shocks. offer once the current “economic clouds” begin to dissipate.

supply issue

Fitch notes that while Russian nickel exports have not been sanctioned, the dispute has tightened available supply and inventory levels have fallen. Fitch analysts note that higher production in Indonesia should help ease supply, as will the growing conversion of mid-production to Class 1 nickel, but this will take time and not fully close the nickel gap top quality Russian.

“Similarly, aluminum also faces supply-side risks from low and declining inventory levels, particularly in Europe. European aluminum smelters are limiting production as soaring energy costs make production unprofitable,” said Fitch.

“With little relief on the horizon for oil and gas prices, supply cuts persist. As with nickel, supply-side drivers are currently overshadowed by bearish Chinese data, and we don’t we do not expect a lasting reversal in the price trajectory before the second half.

In addition, Fitch expects stimulus measures rolled out by Beijing – such as the PBOC’s recent cut to its five-year benchmark prime rate – to help cushion the economy in the second half of the year.

“The lower prime lending rate, which should help boost the infrastructure and real estate sectors, should help lift ferrous metals in particular, alongside expectations for further stimulus. Due to these factors, we maintain our expectation of some recovery in metal prices in the second half of 2022 while acknowledging that our previous price expectations may now need to be revised downwards in the coming weeks.” declared Fitch.

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