Cyclical metals: Strong stays steel, while copper is weak

Data from China was less negative than perceived

Carsten Menke, OpinionIndustry Expert
Carsten Menke joined Bank Julius Baer in December 2009. In his current position, he is responsible for the analysis of commodity markets, in particular base metals and precious metals. Before moving to Bank Julius Baer, Carsten Menke worked at Sal. Oppenheim Jr. & Cie. in Cologne, where he set up the Commodity Research unit. In 2002, he started working for Deutsche Bank as a Relationship Manager and became investment advisor in 2003. He received his degree in Business Administration at the University of Cologne in 2007 and became a CFA Charterholder in 2011.

August 15, 2018

Cyclical metals: Strong stays steel, while copper is weak

Yesterday’s economic data for July provided further evidence of China’s slowdown. Growth in industrial production and fixed asset investment continued to calm.

Dig deeper and we find that infrastructure investment remained one of the weakest segments. Projects still face scrutiny as the central government became more concerned about local government debt levels.

That said, recent news points towards an acceleration of project approvals, suggesting that infrastructure investments should rebound.

Elsewhere, manufacturing and property investment trended higher while other property related indicators such as prices, starts and sales remained resilient.

From a metals demand point of view, the data was less negative than perceived and hence markets hardly reacted to it. Steel continued to climb as hopes of a recovery of infrastructure investment added to an already strong demand backdrop as well as concerns about looming heating season capacity cuts.

With inventories down to low levels, short-term price risks remain skewed to the upside. Medium to longer term, we still see a well-supplied market and expect prices to moderate.

After digesting the Chinese data, copper came under pressure on news that wage talks at Escondida, the world’s largest mine, were progressing. The risk of a strike has receded and workers will vote on a new wage proposal over the coming days.

With prices down below $6,000 per tonne this morning and sentiment in the market very bearish, a lot of bad news is priced in. Recovery potential should still be limited as the market is unlikely to receive another sentiment boost.

Any opinions expressed here are the author’s own.

Disclaimer: This article is provided for informational purposes only. The content does not provide tax, legal or investment advice or opinion regarding the suitability, value or profitability of any particular security, portfolio or investment strategy. Read our full disclaimer policy here.