(MENAFN- Colombo Gazette) Prices for nonferrous metals like copper and zinc have slumped this month despite predictions of shortages just a few weeks ago, on concerns that the shortfalls could turn into surpluses if Chinese demand recovers more slowly than expected.
Three-month zinc futures on the London Metals Exchange, an international benchmark, fell to $2,483 per tonne at one point Tuesday, the lowest since October 2020 and down by roughly half from the all-time high reached in spring 2022.
Copper sank as low as $8,090.50 per tonne the same day, its weakest in nearly half a year, while lead has slid to a three-month nadir. All three commodities, used in a range of construction and industrial applications, have seen especially sharp declines this month in particular.
This came as a surprise to many market players, as it occurred after industry groups and investment banks had forecast tighter supplies than previously expected.
The International Copper Study Group, an organization of countries that produce and use copper, released a forecast April 28 showing a 114,000-tonne shortfall for the year, swinging from a 155,000-tonne surplus projected in October. The change owed mainly to expectations of higher Chinese demand, for which the estimated growth rate was revised up to 1.2% from 1%.
At about the same time, the International Lead and Zinc Study Group projected a zinc deficit of 45,000 tonnes, also driven by changes in the demand outlook for China, which accounts for half of global zinc usage and 40% for lead. UBS Global Wealth Management and Goldman Sachs were bullish on nonferrous metals prices as well.
Prices generally rise when demand is tighter, but not in this case amid investor uncertainty about the actual pace of the demand recovery in China.
“There would normally be a sense of a shortage, but demand hasn't kept up, mainly in the manufacturing sector, so the supply-demand balance doesn't feel tight,” said a Mizuho Bank researcher, who noted that the turmoil among U.S. regional banks and the debt ceiling standoff in Washington have chilled investor sentiment as well.
“The zinc supply situation is improving as the high electricity costs in Europe have abated, while demand in China and elsewhere isn't great, which has led to a larger decline” in prices, said the head of the metal sales department at Japan's Toho Zinc.
These doubts are underpinned by lackluster economic data. China's industrial production data for April released Tuesday showed a 5.6% year-on-year increase, short of the market forecast of about 11%. The consumer price index edged up 0.1% on the year, the smallest increase in more than two years.
“The view that the economic recovery will take time is leading to a deterioration in the materials market, including nonferrous metals,” said Atsushi Takeda, chief economist at Itochu Research Institute.
Although a strong recovery was hoped for after the easing of China's zero-COVID policies, in reality, signs of economic weakness continued, leading to disappointed selling.
The U.S. economy is weighed down by continued interest rate hikes and the collapse of a few regional banks. If China's economic doldrums worsen, the impact on the global economy will be immeasurable. Nonferrous metal prices will continue to be a bellwether for the increasingly uncertain future of the global economy. (asia.nikkei)