As the demand outlook worsens and the global economy experiences issues as a result of rising interest rates. Analysts who follow commodities predict that metal prices will likely be under stress for the rest of the year.
Metal prices, which have been falling over the past two weeks, have been further hampered by China’s efforts to restrict the COVID outbreak with a pledge to “dynamic zero.”
Key metal costs have decreased by almost 3% from a month ago. But steel costs have dipped by more than 3.5%. Tin has dropped 4%, zinc has dropped 8%, and nickel has dropped 8%. Aluminum and lead were two exceptions to the trend, both of which have increased slightly.
According to research firm Fitch Solutions Country Risk and Industry Research. “Metals prices have kept falling amid the continued strengthening of the dollar, quickly worsening demand outlooks due to China’s strong commitment to anti-Covid regulations, & negative sentiment from cumulative economic pressures made by rising interest rates led by Federal Reserve.“
The US inflation figures from September increased the likelihood that the US Fed will tighten liquidity even more and hike interest rates by another 75 basis points at its meeting in November.
Copper prices will fall as a result of this. The decline in crude oil prices last week brought on by worries about the world economy was detrimental to copper prices.
Chinese Real Estate Market Problems.
Nickel and copper prices this year, according to Fitch Solutions, are still higher than prior lows. Prices for iron ore have stabilised near $95 per tonne. And composite steel indexes are also declining by 2 to 3 percent month over month.
There have been monthly losses of 3.1% for gold and 3.3% for silver, respectively.
The problems in China’s real estate market and the Covid-19 lockdowns have put pressure on copper. According to ING, the financial & economic analysis division of the Dutch multinational financial services company ING. Investors have also shunned commodities due to tighter central bank policies.
According to the report, “recession fears & waning global manufacturing output are affecting the short-term demand forecast.”
According to Fitch Solutions, the current environment’s low stocks and modest increases in mining CAPEX relative to output growth leave only supply limitations and persistently high energy prices are drivers of metal price hikes.
Financial Tightening.
However, this will be restrained by feedthrough impact of lower prices on miners & rising potential for just a slowdown & pause in monetary tightening in the US and the Eurozone.
“On the other side, we expect ongoing downward pressure even as market prices in a significantly weaker demand outlook through China for Q422 and 2023 as well as global recession risks.”
According to ING Think, the Covid epidemic is still having a negative impact on demand. Therefore China’s support for real estate is not boosting market confidence.
According to Fitch Solutions, actual steel Chinese demand has significantly underperformed forecasts this year, declining 5.6% from January to August. Steel is indeed the relevant indication for the majority of metals.
“The drop in demand in residential homes has coincided to severe interruptions to economic activity. As demonstrated by the fact that private mortgage issuances have all been around 25% down year-over-year for each months from June to August…
The decrease in steel demand is indicative of a more general downturn in the construction industry. Which has negatively impacted demand for a number of metals, the report stated.
However, the research organisation warned that supplies may be scarce in 2023 and that declining stockpiles will provide prices a “soft” floor to fall on