Chinese demand for industrial metals expected to stabilize after falling prices
As prices for both ferrous and non-ferrous metals hit multi-year highs in May this year, Chinese demand for these industrial metals immediately plummeted. However, demand from the communist nation will likely stabilize as prices have fallen since then, two research companies said.
According to Fitch Solutions Country Risk and Industrial Research (FSCRIR), China’s domestic demand for industrial metals has started to show signs of stabilization after soaring in the first five months of the year.
Increase in construction activity
Although the research firm anticipates a drop in demand in the coming months, it does not expect a collapse in the current semester as construction activity in China will continue. The pace of business, however, could be slower than in the first half of the year, he said.
Highlighting increased volatility in metals markets over the past month, Dutch multinational banking and financial services research firm ING Think said the Chinese government has repeatedly tried to slow the rise in prices, with more or less less successful.
“Part of this intervention includes cracking down on speculation in the domestic market, while finally confirming the release of aluminum, copper and zinc from state reserves,” he said.
In the past month, copper prices have fallen more than 4.5%, while steel’s gains have been reduced to less than 1%. Aluminum prices fell by almost 1% and zinc prices by just over 2%. Prices for iron ore and metals such as tin and nickel rose slightly. However, the rates of all of these are lower than the peaks seen in May.
ING Think said the Chinese impact on prices is likely to be short-lived, as the market was underestimated by the volumes of metals offered by the Chinese government when the shares were first released.
Fitch Solutions said the spike in construction activity will cause demand for metals to stabilize in China, and levies in the automotive and consumer electronics sectors will remain large for the remainder of the year.
“Our infrastructure team expects the Chinese construction industry to grow 8.6% year-on-year this year, compared to 3.2% growth in 2020. Along with strong growth in demand from the construction industry, demand for automobiles, consumer electronics and the home appliance sectors will also support demand for metals, ”he said.
On its rationale for the re-emergence of demand for copper, ING Think said, “If we look at China, import premiums for copper cathodes are at their lowest for several years, with downstream buyers sitting on the sidelines. in this relatively higher price environment.
FSCRIR said its automotive team expects Chinese vehicle production to increase 18% this year from last year, when production fell 2.8%.
Stimulation to slow down
With China’s capital investment seeing cumulative growth, metals used in manufacturing, infrastructure and real estate are expected to experience strong growth in demand this year, Fitch’s research division said.
Chinese demand for steel and iron ore peaked in the first half of the year, but FSCRIR said it expects Beijing’s infrastructure and construction stimulus to slow ongoing projects. of completion. The new projects are not taking off either, he added.
Chinese steel consumption is likely to grow 10.8% this year from last year, while copper consumption is expected to increase 1.4% year-on-year over the 2021-25 period. The outlook for copper could be uplifted, however, Fitch Solutions said.
ING Think said signs of easing in the copper market are visible, with stocks on the London Metal Exchange rising significantly. As the market goes from a surplus to a deficit, demand will stabilize.
FSCRIR said the prices of these industrial metals are expected to stabilize and remain at high levels from the previous year.