Our team of analysts explored the impact of persistent global growth concerns – with a particular focus on China and its Covid-19 economic recovery performance – on base metals and broader commodity markets.
They also provided an overview, highlighting the increasingly visible impact of secular demand trends arising from the global energy transition and the challenges associated with delivering sufficient supply to meet them.
The summit kicked off with an outline of the global macroeconomic outlook, setting the scene for our analysts to explore the impact on the performance of base metals. The global importance and dominance of China highlighted at the outset remained a key theme throughout the summit. The increased Chinese share of both global industrial production and global trade in recent years underlines its importance with our analysts consistently commenting on its influence across most metals markets.
A clear positive on the Chinese side is that we’ve seen very strong first use demand growth for industrial metals due to rising intensity from EV penetration and export strength. However, in a weaker external environment, you’d need an even stronger pick-up in Chinese domestic end demand to support that first use demand for raw materials.”
Marcus Garvey
Head of Commodities Strategy
Macquarie Commodities and Global Markets
A more in-depth analysis of the base metals market demonstrated that we’re now seeing a fundamental loosening that’s consistent with the slowdown in global industrial production. If global growth continues to slow, China doesn’t reaccelerate and ex-China weakens further, our analysts predict downside risks over the next six to nine months before structural positives start to emerge.
Even though there are positive secular demand stories, if global industrial production is weak, and a global recession occurs, the energy transition won’t serve as a big enough offset in the near-term to deteriorating global goods demand.”
Ric Deverell
Chief Economist and Head of Net Zero
Macquarie Group
Demand growth has been strong in several metals markets, whilst others have had a meaningful headwind. However, our analysts believe that doesn’t necessarily correlate with performance, and they made it clear that it’s about supply and demand and how those balances come together. Some metals, like copper, may be in that “sweet spot” in terms of relative balance over the medium-term, although the short-term micro picture points to downside price risk.
We’re forecasting a period of oversupply for copper and weaker pricing over the next few years. However, the opposite can be seen in the longer term as a positive demand outlook, driven by the energy transition, is creating a theoretical supply gap of 2.3Mt by 2030, lifting sentiment and prices.”
Alice Fox
Senior Base Metals Strategist
Macquarie Commodities and Global Markets
Conversely, with regards to nickel, the LME price is under pressure, with class two material being converted into class one metal.
The nickel market is structurally in surplus, which started in class two, moved into the sulphate market, and is now moving into the metal market. From an LME perspective, we should start to see the return of correlation between those two prices, which is good news for LME trading.”
Jim Lennon
Senior Commodities Consultant
Macquarie Commodities and Global Markets
A key feature for nickel, is the overwhelming dominance of China in both the stainless steel and battery sectors, covering more than 70 per cent of supply and demand, together with Indonesia. Next year, our analysts expect to see batteries re-emerge as the main driver of demand, with the biggest future challenge being raw material availability, particularly for lithium as it’s used in all battery types. Whilst our analysts were still constructive towards lithium, they were more negative about cobalt and nickel prices. The cost of raw materials has been coming down on a spot basis, particularly for high-nickel batteries, and that trend of lower battery prices is also contributing to downward pressure on EV prices.
Reflecting on the year gone by, and in the run up to the summit, global growth saw no signs of picking up, which posed a challenging backdrop for metals markets. With the energy transition still playing out, the positive long-term demand outlook for metals remained, as well as the challenge of delivering sufficient supply.
Headquartered in London, our commodities strategy team is renowned for having delivered exceptional sector insights consistently for more than 25 years. The team has again been awarded commodities research house of the year at the Energy Risk Awards 2023.
With 10 analysts spread across offices ranging from Houston to Shanghai, the team cover energy markets, base metals, precious metals, and bulk commodities.
As part of our wider client offering, and in addition to commodity market analysis, we also provide insights and macro views across economics and foreign exchange markets.
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