Industrial metals receiving a boost from China reopening hopes
While the energy sector traded lower on concerns about the global economic growth outlook, industrial metals took comfort from the potential for an economic rebound in China, the world’s biggest consumer of metals, after the country continued to loosen Covid-19 controls while rolling out several measures designated to support the beleaguered property sector.
The Bloomberg Industrial metals index trades up 5% on the month so far with gains being led by zinc and copper with iron ore also seeing a strong rebound. While Dr. Copper increasingly in recent years have responded to the health of the Chinese economy, more than the global economy, the strength seen this past month remains impressive. Not least considering an expected supply surplus next year as mine supply is expected to increase and the global economy is expected to go through a soft patch.
However, the market is currently behaving as if the mentioned increase in mine supply may end up weaker than expected, and if that turns out to be correct, the market will instead look towards an emerging supply deficit in the following years supporting prices as renewables related demand picks up speed across the world. Exchange monitored stock levels in New York, London and Shanghai remain near a multi-year low and without the expected increase in mine supply, the shortfall may emerge sooner than currently being priced into the market.
For the second time in a month, HG copper has returned to challenge resistance around the 200-day moving average, currently at $3.925 per pound, with a break above raising the prospect for the metal breaking back above $4, a level that provided support for more than year up until June when renewed China lockdowns saw it tumble below.