Industrial metals prices weighed down by trade, demand fears Industrial metals prices weighed down by trade, demand fears Industrial metals prices weighed down by trade, demand fears

Industrial metals off to a strong start on China stimulus signs

Ole Hansen

Head of Commodity Strategy

Summary:  The industrial metal sector has, just like crude oil, started 2022 with strong gains led by nickel and aluminum, and following months of sideways trading, copper is now also breaking higher. The prospects for rising electrical vehicle demand, tight supplies and signs China is stepping up its policy response to a slowing economy have all helped reduce some of the macro risks that has weighed on the market in recent months, especially those stemming from China’s beleaguered property sector.


The industrial metal sector has, just like crude oil, started 2022 with strong gains led by nickel and aluminum, and following months of sideways trading, copper is now also showing signs of breaking higher. The prospects for rising electrical vehicle demand, tight supplies and signs China is stepping up its policy response to a slowing economy have all helped reduce some of the macro risks that has weighed on the market in recent months, especially those stemming from China’s beleaguered property sector. 

In my December 1 update I highlighted the reasons why we see further upside for copper and other industrial metals in 2022, not least driven by the prospect for inelastic supply struggling to meet green transformation demand towards electrification. In another update from November 19, Peter Garnry, our head of Equity Strategy also highlighted how copper is an essential metal in our green transformation push driven by electric vehicles and upgrades to our electric grid infrastructure. 

In addition, the ongoing urbanisation in the world is also driving construction which is one of the key demand drivers for copper. Apart from describing how to get exposure to copper through futures, CFD’s and ETF’s, he also published a list of mining stocks topped with the six miners with the highest exposure to copper.

While the decarbonisation of the world remains a key long-term driver for industrial metals demand and with that the risk of even higher prices, the short-term focus remains squarely on China where decades of high growth has paused with some economists seeing growth falling below 5% in 2022. Chinese authorities are widely believed to have set their sights on a growth rate of at least five percent for this year, and the policy response to ensure that is now under way. Not least considering how economic and social stability are very important to the Communist Party in the run-up to its 20th National Congress, 2022, a key party meeting held every five years and due sometime during the second half.

China’s cabinet has already signaled a desire to speed up the pace of 102 major projects outlined in its 2021-25 development plan. Many of the areas pinpointed will required industrial metals in some sort as they focus on energy security, affordable housing, infrastructure developments and logistics. 

All developments that are likely to drive increasingly tight market conditions across the sector, not least nickel which has reached a decade high as demand from battery producers, due to strong EV trends, has put the spotlight on a tightening supply outlook. Despite months of worrying about the Chinese property market, copper stocks have remained low and as a result exposed to a pickup in demand. 

High Grade Copper has broken out of its recent range, and the move higher may now attract renewed momentum buying from money managers, who following months of sideways trading have cut their HG copper long to 26,000 lots, well below the 2020 high at 91,600 lots, and the record high from 2017 at 125,000 lots. If successful in defending the breakout above $4.47 per pound, only $4.56, the 61.8% retracement of the October to December selloff, and which is already being tested, stands in the way for a renewed upside attempt, initially towards the October high at $4.82/lb.

Source: Saxo Group

Disclaimer

The Saxo Bank Group entities each provide execution-only service and access to Analysis permitting a person to view and/or use content available on or via the website. This content is not intended to and does not change or expand on the execution-only service. Such access and use are at all times subject to (i) The Terms of Use; (ii) Full Disclaimer; (iii) The Risk Warning; (iv) the Rules of Engagement and (v) Notices applying to Saxo News & Research and/or its content in addition (where relevant) to the terms governing the use of hyperlinks on the website of a member of the Saxo Bank Group by which access to Saxo News & Research is gained. Such content is therefore provided as no more than information. In particular no advice is intended to be provided or to be relied on as provided nor endorsed by any Saxo Bank Group entity; nor is it to be construed as solicitation or an incentive provided to subscribe for or sell or purchase any financial instrument. All trading or investments you make must be pursuant to your own unprompted and informed self-directed decision. As such no Saxo Bank Group entity will have or be liable for any losses that you may sustain as a result of any investment decision made in reliance on information which is available on Saxo News & Research or as a result of the use of the Saxo News & Research. Orders given and trades effected are deemed intended to be given or effected for the account of the customer with the Saxo Bank Group entity operating in the jurisdiction in which the customer resides and/or with whom the customer opened and maintains his/her trading account. Saxo News & Research does not contain (and should not be construed as containing) financial, investment, tax or trading advice or advice of any sort offered, recommended or endorsed by Saxo Bank Group and should not be construed as a record of our trading prices, or as an offer, incentive or solicitation for the subscription, sale or purchase in any financial instrument. To the extent that any content is construed as investment research, you must note and accept that the content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, would be considered as a marketing communication under relevant laws.

Please read our disclaimers:
- Notification on Non-Independent Investment Research (https://www.home.saxo/legal/niird/notification)
- Full disclaimer (https://www.home.saxo/en-gb/legal/disclaimer/saxo-disclaimer)

Saxo Markets
40 Bank Street, 26th floor
E14 5DA
London
United Kingdom

Contact Saxo

Select region

United Kingdom
United Kingdom

Trade Responsibly
All trading carries risk. To help you understand the risks involved we have put together a series of Key Information Documents (KIDs) highlighting the risks and rewards related to each product. Read more
Additional Key Information Documents are available in our trading platform.

Saxo Markets is a registered Trading Name of Saxo Capital Markets UK Ltd (‘SCML’). SCML is authorised and regulated by the Financial Conduct Authority, Firm Reference Number 551422. Registered address: 26th Floor, 40 Bank Street, Canary Wharf, London E14 5DA. Company number 7413871. Registered in England & Wales.

This website, including the information and materials contained in it, are not directed at, or intended for distribution to or use by, any person or entity who is a citizen or resident of or located in the United States, Belgium or any other jurisdiction where such distribution, publication, availability or use would be contrary to applicable law or regulation.

It is important that you understand that with investments, your capital is at risk. Past performance is not a guide to future performance. It is your responsibility to ensure that you make an informed decision about whether or not to invest with us. If you are still unsure if investing is right for you, please seek independent advice. Saxo Markets assumes no liability for any loss sustained from trading in accordance with a recommendation.

Apple, iPad and iPhone are trademarks of Apple Inc., registered in the U.S. and other countries. App Store is a service mark of Apple Inc. Android is a trademark of Google Inc.

©   since 1992