China’s impact on commodities markets continues despite structural changes

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China will continue to have a positive impact on demand and prices for metals despite the current slowdown in economic growth and concerns about its real estate sector that could lead to structural changes, speakers at the London Metal Exchange seminar said. (LME) on October 11.

China’s decarbonization measures, with a target of net zero carbon emissions by 2060, as well as decarbonization around the world, will be particularly metal-intensive, delegates heard at the seminar.
China’s role in shaping the future direction of metals markets cannot be underestimated, said Nicolas Aguzin, managing director of Hong Kong Exchanges and Clearing (HKEX), owner of LME since 2012. China should continue to take about 45 to 57% of the shares. global base metal consumption and continues to be the world’s largest metal refiner, accounting for between 35% and 55% of total world production, Aguzin said at the opening of the event, which was held in person for the first time in two years. .

“China’s continued growth and openness is unprecedented… it will become the world’s largest economy,” Aguzin told delegates at the seminar. “This is where the action is. “

HKEX’s establishment of warehouses in the region and taking a minority stake in a Chinese land-based stock exchange will help build on this strength, especially in light of China’s aggressive decarbonization strategy, said Aguzin.

China’s “huge recovery”
China’s ‘huge recovery’ from COVID-19 market collapse, backed by massive stimulus measures, means Asian giant’s GDP growth trend is now above pre-virus level , with exports of some products 40% above pre-COVID-19 levels, while other advanced economies are also heading for a good recovery, Neil Shearing, chief economist at Capital Economics, told the meeting .

US GDP in the third quarter is expected to be above pre-virus levels, and there has been a ‘rapid rebound’ in mobility in Germany, the US and the UK in recent weeks, despite some energy, fuel, goods and labor shortages which can be interrelated and last for 6 to 12 months, he added.

Although the pace of real estate development in China has been “unsustainable”, as evidenced by the difficulties currently facing the major builder Evergrande, and a structural slowdown looming, economic growth of 3 to 4% can be considered as sustainable, said Shearing. And while global and regional economic growth rates may slow in 2022 from 2021 onwards, there is unlikely to be a slowdown in consumption due to a build-up of savings during the lockdown and due to funds from the lockdown. stimulus, he said.

“It’s not the same as the global financial crisis,” Shearing said, “the global economy will fully recover from COVID but we are getting into the hard part.”

Xiao Amelia Fu, head of commodities strategy at Bank of China International, said that while demand for base metals may be slower than it had been due to a slowdown in the commodity sector. Chinese construction, they would still be needed to complete unfinished construction projects already underway. progress. China is likely to shift from infrastructure to manufacturing and services to help stabilize the economy, she said.

Nick Snowdon, head of industrial metals research at Goldman Sachs, said the metals industry is “in the early stages of a supercycle … due to structural underinvestment in supply.”

“COVID has acted as a catalyst to force governments to act on social inequalities, generating a stronger demand environment for commodities,” Snowdon said.

Five-year plan
Looking at China’s five-year plan, widespread prosperity would be good for demand and decarbonization would be very good for demand for base metals as it would accelerate investment in alternative energy, Snowdon added. “China’s share of wind and solar will increase rapidly,” he said.

Fu said the share of electric vehicles in new passenger vehicle sales in China is expected to reach up to 80% of total vehicle sales by 2040 – up from an expected 25% share in 2025 – meaning that the demand for copper is expected to be five times higher. than in 2022.

She added that China is leading the way in battery technology and development, due to more developed supply chains, and this will also boost demand for nickel, lithium and cobalt.

Fu said prices for all battery metals are high, but mostly lithium, due to tight supply and high demand, with current power restrictions in China not really affecting customers. electric vehicle and battery industries. They have not been as affected by COVID-19 either, she added.

Snowdon said he expected an environment of tight markets, declining inventories and significant upward pressure on prices to persist, while Fu said she expected base metals decline slightly, but remain supported by strong supply and demand fundamentals.
Source: Platts


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