Via AG Metal Miner
It may be winter, but it feels like springtime for many in the metal industry and on metal prices in general. After years, China plans to ease up just a wee bit on its COVID-19 restrictions. This includes a reduction in the mandatory quarantine period, which has caused myriad problems for the country’s economy. As one of the world’s largest producers and consumers of metals and minerals, the country’s decision feels like hope to many weary buyers and sellers.
Indeed, the decision provided a big boost to the long-despondent metal world. Multiple industrial metals prices jumped significantly on Friday following the announcement. Of course, this was driven not only by the easing of some restrictions but also by renewed expectations that China would soon abandon its zero-COVID policy entirely.
The News Sent Metal Prices Climbing
The overall market reaction was immediate. Three-month copper on the London Metal Exchange (LME) surged up 3.4%, the highest since June 22, 2022. Meanwhile, the most-traded December copper contract on the Shanghai Futures Exchange climbed 1.5% to US $9515.30 (67,630 yuan) a ton. This represented its highest levels in about five months.
Iron ore also went up last Friday. Indeed, the most-traded January iron ore on China’s Dalian Commodity Exchange, DCIOcv1, ended daytime trade 5% higher at US $99.86 (708.50 yuan) a ton. Price benchmarks for steel products and other steel-making inputs also increased gains. This is to be expected, as China remains the world’s top steel producer,
So far, the good mood continues to carry over to this week. London copper prices edged higher on Monday, and currently hover near their highest point in five months. Singapore iron ore futures were also up, climbing 5% to US $95.85/t.
Except for aluminum, almost all industrial metal markets seem to endorse China’s easing of COVID restrictions. Indeed, China’s pandemic restrictions were only part of the problem, with Russia’s invasion of Ukraine only exacerbated global trade issues.
China Still Has a Lot of Work to Do
Many theories exist as to why China initiated this long-overdue about-face. Some suspect that China’s decision to minimize the impact of COVID restrictions had to do with the LME not banning Russian metal. With metal markets about to turn a dangerous corner, something had to be done.
No doubt, China’s zero-Covid lockdowns have drastically impacted its manufacturing sector and the demand for industrial metals. But that is only half the story. The other half is the loss of demand in China’s property sector. This means this short bull run in metal prices can only enjoy mid-term sustainability if the consumer market picks up.
To that point, China’s property market continued its slump from October. Imports of unwrought copper and copper products fell 1.5% from a year ago. For housing steel, the drop in demand was nearly 30%.
China Issuing Rescue Package for Limping Property Sector
Fortunately, the Chinese Government recently released a 16-point rescue package for the country’s housing sector. While this is great, it may not be enough to pull the markets out of the doldrums. On top of that, the COVID-19 ease-off, too, seems a bit touch and go for now, especially given that the country continues to report high numbers of cases nearly every single day.
Ultimately, it’s important to remember that consumer demand is one of the many things that sway investor sentiment. For a market that has been in a downward spiral for the last 13 months, keeping the current positivity going may become a significant challenge.
Yes, easing off the COVID restrictions is a step in the right direction. But the question Chinese authorities still need to answer the one question the world has: what’s next?
By Sohrab Darabshaw
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