Non-ferrous metal prices are weak on concerns about Chinese demand

International Business News – Non-ferrous metal prices fell into weakness. International prices for nickel, which is used in building materials and automobiles, hit a 4-month low, while copper and aluminum, which have a wide range of uses such as electronics, also fell to a 2-month low. Concerns about the direction of China’s economy intensified after no major economic stimulus measures were proposed during the country’s two sessions. Market participants are increasingly wary of the world economy going forward due to the bankruptcy of several U.S. banks and expectations of an economic slowdown in China.

Looking at the 3-month futures on the London Metal Exchange (LME), an international indicator, copper prices fell 1% from the previous day to close at $8,833.50 per ton on March 14, while nickel prices fell 0.4% to $23,040. Aluminum prices rose slightly on the 14th, although they had fallen to $2,275 on the 13th, a low in about 2 months.

Zinc, which is used for plating steel sheets and other materials, fell to $2,909.50 per ton, the lowest level in about 4 months, and tin, which is used for semiconductor bonding materials, fell to $22,950, near its low in about 3 months.

Speculative money is flowing out of the non-ferrous metals market. Looking at the net position size of the LME’s speculative money long positions (unsettled balance) minus short positions, aluminum was about 4,700 lots as of March 10, down to less than one-tenth of what it was at the end of January. Copper positions also decreased by about 30%.

As of the Chinese New Year in late January, the non-ferrous metals market rose due to the expected economic recovery in China. Copper and aluminum hit their highs since June 2022 on Jan. 18.

Afterwards, non-ferrous metals began to be sold off due to a sense of caution about China’s economy, and prices accelerated their decline after the two sessions. Compared to the pre-conference period, tin fell 7%, nickel fell 6% and copper fell almost 2%. The backdrop for this was the market view that the economic stimulus measures proposed at the two sessions fell short of expectations.

China is targeting real economic growth of around 5 percent for 2023. This is a downward revision from the economic growth rate target of around 5.5% proposed for 2022. The market previously thought it would propose the same target as 2022, thus inviting disappointment. Premier Li Qiang said, “I am afraid it is not an easy task to reach the growth target of about 5%, and we need to work twice as hard，and face certain difficulties” .

There are views in the market that “5% growth rate is a realistic route. The fiscal stimulus to support the economy will not be on the scale of stepping on the gas as before either” (Toru Nishihama, Dai-ichi Institute for Life Economics, Japan). The fiscal deficit is expected to be 3 percent of gross domestic product (GDP), lower than the 2020 target (3.6 percent) and the 2021 target (3.2 percent). The relative scale of fiscal spending has been restrained.

In terms of separate industries, stimulus in the automotive and real estate sectors, once the locomotive of the Chinese economy, was lower than expected. There was no proposal to restore subsidies for new energy vehicles such as pure electric vehicles (EVs). The industry had previously strongly expected measures to boost auto sales and boost manufacturing. Data from the China Association of Automobile Manufacturers (CAAM) showed that new car sales fell 15.2 percent from January to February compared to the same period a year earlier.

In addition, China has not proposed large-scale stimulus measures for real estate sales, etc. Currently, the disruption of works caused by the financial deterioration of developers has become a problem, and the data released by China’s National Bureau of Statistics on March 15 showed that real estate investment fell by 5.7% from January to February. Still no signs of recovery in the real estate market are visible.

Regarding the background of China’s lack of large-scale economic stimulus, Xiao minjie of AIS CAPITAL said that China values socialist order and no longer emphasizes so much on the priority of economic growth compared to politics. Li Xuelian of Marubeni Institute of Economics points out that at the NPC, the seriousness of the real economy was once again realized.

Uncertainty about world economic trends is increasing day by day. Taking the bankruptcy of Silicon Valley Bank (SVB) as an opportunity, the negative impact of the U.S. interest rate hike on financial institutions was realized. Coupled with the uncertainty of the Chinese economy, “the impact on the world economy is becoming increasingly unpredictable. Investor psychology may deteriorate in the short term” (Ryufumi Okoshi of Nomura Securities). The sluggish non-ferrous metal prices after the two sessions highlight the pessimistic view of the market.