By: Natalie Scott-Gray, Senior Metals Demand Analyst, EMEA and Asia region
• So why have we seen such a weak performance?
• This has been driven by a 'perfect storm' of macro headwinds.
• Firstly, the move by major central banks to tighten monetary policy faster than originally anticipated (due to rising inflation) has resulted in a global economic slowdown, with major institutions like the World Bank and IMF downgrading GDP growth forecasts (for 2022 and 2023) several times over this year.
• Secondly, the invasion of Russia into Ukraine has placed European energy security at high risk, with historically elevated energy prices negatively impacting industry players along the entire supply chain.
• Thirdly, with China maintaining its zero-tolerance stance on COVID-19 (amid a backdrop of a weak property sector), the country has recorded an unexpected slowdown (with GDP on track to fall well below its target of 5.5% growth set in March) – despite accommodative policy from both the PBoC and Government.
• We forecast that global manufacturing peaked in 2021 and will continue to deaccelerate over the year.
• Why are the fundamentals so important?
• This is because they separate out the individual price performances within the suite.
• Starting with consumption, we forecast that China will be the focus for higher demand in 2023, with GDP and Industrial Production (IP) forecasts set to accelerate Y/Y in the country (while the outlook for global growth slows).
• In addition, on a sector-by-sector basis, both construction and automotive forecasts Y/Y (which covers two of the largest end-uses for base metals), similarly display Chinese growth outpacing that of global growth in 2023.
The reason why this is so important, is because we expect refined aluminium demand to jump 10% over the next five years.
The question facing the market is – where will supply come from?
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