Metal prices fall globally due to lack of stimulus in China
by: Artem Segen
November 8 the Chinese government announced the allocation of $1.4 trillion to cover debts, but investors assessed this as insufficient to boost the economy. As a result, most base metal prices recorded week-on-week (w-o-w) decline on Friday. After a dynamic price rise in late September on the back of the announced government stimulus in China, metal prices have maintained a downward price trend. After years of declining construction, market players perceive China’s government support to be insufficient. There is no doubt that the transport and renewable energy sectors are growing dynamically, but this is not enough to create sufficient momentum for the Chinese economy.
Source: Mintec by Expana
In addition, October’s global manufacturing PMI data by JP Morgan remained in negative territory at 49.4 points, which led to reduced investor activity. The industrial market remains skeptical about further growth in metal prices on the back of weak PMIs. At the same time, market sources agree that for many base metal prices, the availability of raw materials has become problematic, which is preventing more significant declines in prices.
The steel market is especially sensitive to construction industry dynamics, as more than 50% of the world’s steel production is consumed by this sector. Thus, weak stimulus led to the export of Hot Rolled Coil (HRC) steel futures prices from China reaching a two-month low. According to market sources in Asia, steel stocks remain high and are sufficient to meet current demand. The results of the stimulus, which are likely to be reflected in the growth of steel demand, will probably only be felt next year. Prices for raw materials for steelmaking in China are also falling, but at a slower rate than those of finished steel products.
Energy prices rose slightly on Middle East tensions and colder weather forecasts for Europe
Over the week up to November 8, crude oil prices rose modestly. The decision by OPEC to extend output cuts into December provided some support to prices. Additionally, airstrikes by Israel in Lebanon and Syria, and consequent supply concerns, continue to worry market players.
However, sources in the crude oil market do not expect to see a marked increase in import demand from China, despite the stimulus package. Additionally, despite the output cut extension, OPEC has lowered its oil demand growth forecast for three consecutive months. The organization is uncertain about long-term oil demand from Europe and China, adding some bearish sentiment to the market.
Gas prices in Europe increased in the week ending November 8, with market sources noting an uptick in withdrawal from gas storage. Although storage is above the 90% target and the five-year average, it is lower year–on–year (y-o-y). Additionally, players anticipate colder weather in the coming weeks, potentially increasing demand for gas.
The Brent crude oil (DH-0) price rose 1.1% w-o-w to $73.87/barrel. Meanwhile, the natural gas TTF NL (DH-0) price increased to €42.45/MWh, up 8.3% w-o-w. In the US, the natural gas NYMEX (DH-0) price was $2.67/10therm, a 0.4% w-o-w increase. The European electricity index rose by 18.3% w-o-w to €114.32/MWh.
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