By: Natalie Scott-Gray, Senior Metals Demand Analyst, EMEA and Asia region
If we briefly look back at 2022, the base metal index underwent significant volatility, with prices for copper, aluminium, tin and nickel posting their highest levels on record in early March (upon the invasion of Russia into Ukraine), where supply fears controlled price direction. However, by Q2 (and the over the remainder of the year), concerns built over demand destruction as a ‘perfect’ storm of macro headwinds played out, while ‘official’ Russian sanctions on base metal producers did not materialise. Please note, Russia is responsible for 4% global copper production, 6% of nickel production (including being the largest country of production for class I nickel), 6% of aluminium, 3% zinc, 2% lead.
‘Perfect’ Storm of Macro Headwinds in 2022
• Major central banks moved to tightened monetary policy on rising inflation, with economic growth becoming a concern.
• The U.S. dollar outperformed other global currencies, hitting a 20-year high.
• Russia’s invasion of Ukraine (and consequential implementation of global sanctions) placed European energy security at risk.
• China’s economic growth (GDP) fell well below the 2022 set target of 5.5% due to the country’s commitment to a zero-tolerance approach to COVID-19.
• Global manufacturing (because of the above) was unable to return to levels posted in 2021
The base metal index is on track to record a quarterly decline of ~3% for Q1, reversing expectations at the start of the year, in which optimism over China’s reopening following the dropping of zero-tolerance on COVID-19 in January, underpinned expectations of demand support. However, as it stands, with only luke-warm economic readings coming out of China (please see our report X), in addition to increasing market jitters over the collapse of several U.S. banks (and over the weekend UBS’ agreement to absorb Credit Suisse), bearish parameters for the metals are ramping up in the near-term. Furthermore, while the focus this week will be the outcome of the upcoming U.S FOMC meeting on Wednesday, attention should be given to the three-day trip by Chinese President Xi Jinping to Russia from 20th-22nd March, in which China aims to increase its image as a global ‘statesman’.
Meanwhile, Chinese base metal production ramps up:
• Aluminium output up 7.5% Y/Y to 6.7Mt
• Crude Steel output lifted 5.6% Y/Y to 169Mt
• Steel products output lifted 3.6% to 206.2Mt
• Pig Iron output rose 7.3% to 144.3Mt
Please note, the LME pushed back the reopening of Asian trading hours for its nickel contract (from 20th March to 27th March), following the invalidation of nine nickel warrants, representing 0.14% of live nickel stocks. These nine warrants have been invalidated, and so cannot be delivered against LME contracts, and the warrant owner notified. The LME continues to work with and support all affected holders of live and cancelled warrants. To read the full release report from the LME. Please follow this link.
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