Strong month for metals not a sign of things to come

May was a strong month for the prices of most metals, but we suspect that this may be as good as it gets. After all, if we’re right in expecting economic growth in China to slow in the second half of this year, the prices of most industrial metals are likely to end the year lower. Meanwhile, the recent rise in the gold price has been far larger than is implied by the fall in real yields, and we think that the gold price will come under renewed downward pressure in the months ahead as real yields start to creep higher.
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Metals Data Response

Global Steel Production (Jun.)

Growth in global steel production remained in double digits in June, but this largely reflects the low base for comparison from last year. Meanwhile, government-imposed environmental controls in China weighed heavily on steel production there, and renewed efforts to clamp down on excess steelmaking capacity in recent weeks suggest it will fall further in the months ahead.

23 July 2021

Metals Data Response

Global Aluminium Production (Jun.)

Global aluminium output growth softened in June, largely due to power cuts in China’s key aluminium-producing province of Yunnan. But these curbs have started to be relaxed in recent weeks, which suggests that growth in global aluminium production will start to accelerate again before long.

20 July 2021

Industrial Metals Update

Beginning of the end for copper rally

After reaching an all-time high in May, the price of copper has since come off the boil. And we think it will fall further over the next eighteen months or so, as a combination of weaker economic growth in China and a greater availability of both ore and scrap supply tips the refined market into a surplus.

16 July 2021

More from Commodities Team

Commodities Economics Chart Book

An emboldened UAE scuppers the OPEC+ united front

Oil prices were rising in June even before the July OPEC+ meeting ended in disarray, without agreement. Strong growth in demand as economies lift virus-related restrictions is expected to continue to support the prices of all energy commodities in the coming months. However, we expect the prices of metals and agricultural commodities to ease back as supply gradually picks up.

6 July 2021

Commodities Weekly Wrap

Oil to outperform in Q3

We expect strong growth in oil demand this quarter as virus-related travel restrictions are lifted in most of the largest consuming countries. At the same time, supply will remain relatively constrained even if, as we think likely, OPEC+ is gradually raising output. These positive fundamentals should push oil prices higher in the coming weeks, before they start to fall back later in the year. By contrast, we think industrial metals prices have probably already peaked. China’s June PMI readings, released this week, were weaker and we expect growth in the economy to slow further as policy conditions tighten. What’s more, the PMIs showed some softening in orders for China’s exports, which are typically metals-intensive. Turning to next week, it is relatively quiet on the data front although the oil market will presumably be digesting the outcome of today’s OPEC+ meeting. At the time of writing, the group was still in discussion about production quotas for August. We will analyse the outcome of the meeting in a forthcoming Energy Update, early next week.

2 July 2021

Commodities Weekly Wrap

This week’s sell-off a sign of things to come

Commodity prices fell sharply this week following a more hawkish than expected Fed meeting and a disappointing batch of activity data out of China. Both developments are in line with our forecast of higher real yields and a stronger dollar in the US, as well as slower economic growth in China as policy support there continues to be withdrawn. In turn, this supports our view that most commodity prices will end the year lower. What’s more, the scale of this week’s fall in commodity prices is also consistent with our assessment that much of the rally over the last year or so has been led by investor speculation as opposed to a genuine improvement in the underlying fundamentals. Following this week’s excitement, next week is likely to be quieter. The June flash PMI data for the euro-zone will be released on Wednesday, and we expect them to provide further evidence that economic activity there is rebounding as virus-related restrictions continue to be eased. If so, this could help commodity prices to claw back some of their losses from this week.

18 June 2021
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