Metals Update – 21 August

A Look Back

Copper prices saw a resurgence this morning following three consecutive weeks of decline. The support came from diminished stocks and the anticipation of increased demand during the upcoming autumn season. However, gains were limited due to the prevailing concerns about China’s property and economic challenges.

As of this morning, three-month LME copper showed a 0.7% rise, reaching $8,283 per metric ton. Last week, China’s reduced domestic stocks and growing overseas stocks created favourable conditions for imports, triggering a rally in the Yangshan copper premium.

Economists highlight that heavily indebted municipalities pose a significant threat to China’s economy and financial stability. This risk has emerged from years of excessive investment in infrastructure, substantial drops in returns from land sales, and escalating expenses linked to managing the COVID-19 pandemic.

Despite the doubts cast by an unexpected interest rate cut on the prospects of economic recovery, Chinese rebar and hot rolled coil futures displayed gradual increases on Tuesday due to expectations of more robust stimulus policies.

The steel market maintained relative calmness on Wednesday, with rebar and hot rolled coil futures experiencing gradual gains. This development stemmed from higher spot prices and the resurgence of rumours about potential production restrictions.

Reflecting weakened demand and elevated supply, the discount on aluminium for near-term delivery compared to the three-month contract on the LME reached its highest point since the global financial crisis of 2008.

In terms of specific metal movements, LME aluminium (CMAL3) rose by 0.28% to $2,138 per metric ton, tin (CMSN3) also increased by 0.42% to $25,348, zinc (CMZN3) recorded a 0.4% gain at $2,307, nickel (CMNI3) edged up by 0.35% to $20,235, while lead (CMPB3) experienced a 0.3% decline, settling at $2,142.

A Look Forward

Country Garden, China’s top private property developer and the sixth-largest builder on a broader scale, has become one of the recent casualties. The company, engaged in the construction of over 2,500 housing projects across China, teeters on the edge of defaulting as a consequence of missing two bond payments earlier this month.

Goldman’s analysts indicate that despite heightened policy measures, there exists a bias towards negative outcomes for their projected full-year GDP growth of 5%, owing to the persistent downturn in the property sector.

Goldman Sachs isn’t the sole entity expressing apprehensions about downside risks. Morgan Stanley is now part of the expanding group of firms that hold scepticisms regarding China’s ability to attain its 5% growth target for the current year.

*The current market lows and uncertain conditions have encouraged many manufacturers, distributors, stockholders and galvanizers to utilise Future and Hedging Contracts to overcome risks forecasts for Q4 2023.

Foenix Partners, 26 Curtain Road, London, EC2A 3NY