Several industrial commodities have had price declines this year. There was significant speculation last year at this time of an industrial activity boom as China exited “zero Covid” policies at the end of November 2022.1
This action led to higher commodity prices in expectation of a demand ramp up in early 2023 after a China reopening.2
- Copper prices hit $9,356 per ton on January 23 and are now 12.98% lower at $8,142
- Aluminum prices hit $2,658.50 per ton on January 25th, and are now 15.65% lower at $2,242.50
- Nickel prices hit 31,118 per ton on January 3 and are now 42.76% lower at $17,813
- Zinc prices hit $3486.50 per ton on January 26 and are now 25.35% lower at $2602.50
The ramp up in metals demand did not meet expectations due to a combination of factors – including the Chinese New Year holiday when the country's factories shut down from January 21–27; a delayed return to regular activity by Chinese citizens; and lingering tight fiscal, energy and monetary policy – which constrained the economy. Additionally, droughts in China have restricted hydroelectric power generation and disproportionately constrained industrial activity in Yunnan province.3
Despite the disappointments, there have been bright spots for commodity investors as Chinese commodity demand is increasingly driven by the energy transition and exports rather than the domestic property market.
China's solar power exports were up 34% in 1H 2023,4 after growing 64% in 2022.5 Strong solar panel exports are interesting, given the price of silver used in solar panel manufacturing.
Silver closed at $22.84 an ounce on October 31, 2023.6 That is below the AISC7 cost of some miners of $29 an ounce.8
China NEV, or new energy vehicle (primarily battery-powered) exports to the EU were up 112% y/y through the first seven months of 2023.9
The International Monetary Fund10 earlier this month increased Chinese GDP11 growth estimates to 5.4%, up from 5.0%, and they also raised 2024 estimates to 4.6% from 4.2%.
The cause of the revision is China's recent decision to approve a 1 trillion yuan ($137 billion) sovereign bond issue and allow local governments to front-load part of their 2024 bond quotas to support economic growth.12
The combination of price declines in metals markets from lofty levels in January, along with forecasts of higher growth in China, may present an opportunity for investors.
2 All data via Bloomberg, current price as of November 9, 2023.
6 Bloomberg data as of October 31, 2023.
7 All-In Sustaining Costs = Cash Costs (including by-product credits) + Sustaining Capital + Exploration expenses + General & Administration expenses
11 A monetary measure of the market value of all the final goods and services produced in a time period by a country.
The statements and opinions expressed are those of the author and are as of the date of this report. All information is historical and not indicative of future results and subject to change. Reader should not assume that an investment in any securities and/or precious metals mentioned was or would be profitable in the future. This information is not a recommendation to buy or sell. Past performance does not guarantee future results.
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