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Lockdowns are only part of China’s subdued demand

The supply risks associated with the war in Ukraine have not gone away, but there has been more market attention in recent weeks on the outlook for commodities demand. In the very near term, the lockdowns in China weighed on both energy and, to a lesser extent, metals consumption. This should bounce back if and when restrictions are fully lifted. However, we think China’s commodities demand will remain subdued thereafter on the back of weaker export demand and sluggish construction activity. As a result, we forecast that metals prices will fall further this year. Looking to next week, China is set to publish its activity and spending data for May, which should pick up a little from the depressed levels in April but may not be enough to give a significant lift to commodities prices. Otherwise, we will continue to monitor closely the covid response in China (given its impact on energy demand) and the timely data on Russia’s energy exports to gauge the impact of sanctions.

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