Un seul compte Saxo suffit pour accéder à nos plateformes.
Industrial metals: weak October ends with cautious bounce
Matières premières
Ole Hansen
Head of Commodity Strategy
Résumé: The industrial metal sector is heading for a monthly loss with the Bloomberg Industrial Metal index trading down 4% to a January 2021 low, and despite the Chinese government ramping up economic support measures the sector continues to suffer amid concerns about the medium-term outlook for demand growth in China and the rest of the world. Losses across the sector was reduced towards the end of month after the Chinese government made a rare mid-year budget adjustment, a move which boosted confidence that Beijing will not tolerate a sharp slowdown in growth and with that demand for key metals
Key points in this copper focused industrial metal note
- Industrial metals see broad declines in October led by almuminum and zinc
- The sector continues to suffer amid concerns about the medium-term outlook for demand in China and ROW
- Copper bounce from key support in response to China support and falling exchange-monitored stocks
The industrial metal sector is heading for a monthly loss with the Bloomberg Industrial Metal index trading down 4% to a January 2021 low. As per the table below, all the major industrial metals, except tin have suffered setbacks led by zinc and aluminium, while copper has managed to limit its loss to around 2% amid signs of tightening stock levels. Despite the Chinese government ramping up economic support measures the sector continues to suffer amid concerns about the medium-term outlook for demand growth in China and the rest of the world.
Losses across the sector was however reduced towards the end of month after the Chinese government made a rare mid-year budget adjustment, a move which boosted confidence that Beijing will not tolerate a sharp slowdown in growth, and with that demand for key metals. In addition, Wednesday’s FOMC meeting will also be watched closely for any signs of peak rate or statement that may halt the recent surge in bond yields which is hurting investment decision through rising cost of financing.
Earlier this month the London Metal Exchange held its annual LME Week and the mood was somewhat sombre with participants wondering whether a better-than-expected demand situation in China this year can be sustained into 2024 as the risk of slowdown across the world continues to rise amid high interest rates putting a brake on economic activity. On the other hand, there were also signs that the developed market cycle is getting close to a through following months of destocking whilst a peak in US rates would also help support sentiment.
The energy transition is real, and it will create a significant amount of demand for some metals which in turn is leading companies to look where they can reduce the dependency on these. On the other hand the current uncertainty and rising cost of financing will drive investment uncertainty, raising the risk that sufficient supply will not be developed in time, potentially forcing up prices for in-demand metals with copper, the so-called king of green metals, once again being singled out given the focus on wind, solar, EV’s and subsequent power-grid related demand.
While the short-term outlook for copper continues to be challenged, the lack of big mining projects to ensure a steady flow of future supply in the coming years continues to receive attention from long-term focused investors as it supports a structural long-term bullish outlook, driven by rising demand for green transformation metals and mining companies facing rising cash costs driven by higher input prices due to higher diesel and labour costs, lower ore grades, rising regulatory costs and government intervention, and not least climate change causing disruptions from flooding to droughts.
Our copper monitor above highlights some of the current drivers of the copper market, not least inventories where we are seeing declines following a recent build in global stocks held at exchange monitored warehouses, giving enough support for High Grade copper to bounce from key support in the $3.5450 per pound area and LME copper from around $7850 per tons. Copper supply in China is leading the renewed tightening focus after exchange inventories dropped to a 13-month low, while holdings at bonded warehouses fell to a record low, according to Shanghai Metals Market. The London Metal Exchange which led the recent strong buildup in stocks is now also seeing declines.
Leveraged funds such as hedge funds and CTA’s have been trading HG copper futures with a negative bias since August, and in the latest reporting week to October 24, the net short saw a small reduction to 17,844 contracts, not far from a 15-month high at 23,000 contracts from May this year, and should the current recovery continue we may see some additional momentum from funds covering short positions. Apart from stocks and speculators we are also watching movements in the Chinese yuan, as well as the forward curve, given the signal it sends about the cost of holding a position.
The HG copper chart shows how the metal is trying to build an uptrend, which would likely be strengthened on a break above the falling trendline (red line), currently around $3.70. This move comes after several rejections and later bounces from key support at $3.5450. There is, however, strong overhead resistances, most notably around $3.86 where a falling trendline from the January 2022 record peak meets the 200-day moving average. Until that level has been broken, copper will most likely remain rangebound with a cautious bias.
Dernières informations sur le marché
Podcast