Metals Market Caught Between Old and New Cycles in 2023
A Challenging Year for Industrial Metals
2023 has been a difficult year for industrial metal traders, marked by fluctuating conditions and an overall decline in metal prices. The LME Index, reflecting the performance of major base metals on the London Metal Exchange, has seen a 7% decrease since January. Copper, however, is an exception, witnessing a price-positive year due to a late rally.
China's Underwhelming Recovery and Global Manufacturing Slowdown
China's recovery from its 2022 lockdowns has been less dynamic than expected, affecting metals demand. Concurrently, manufacturing sectors in the U.S. and Europe have shown signs of contraction, pointing to the continued dominance of the old industrial cycle in metals pricing.
The Emergence of the Green Energy Super-Cycle
Despite the sluggish traditional markets, the green energy super-cycle has emerged as a crucial demand driver. This new cycle, though perhaps initially overestimated, has balanced the traditional metals demand from sectors like construction and electronics.
Surprise Factors in Metals Supply Chains
2023 also highlighted the unpredictability of metals supply chains, with potential for unexpected disruptions.
Old Industrial Cycle's Impact
The industrial downturn, particularly in China, Europe, and the U.S., combined with a strong dollar, typically signals a low point in base metals pricing. However, the LME Index's resilience, despite these factors, underscores complex market dynamics.
New Cycle's Rising Influence
The new cycle, driven by energy transition investments, has compensated for the demand shortfall in traditional sectors. This is especially evident in China, where despite the manufacturing sector's contraction, there has been a surge in metals production and imports. China's significant intake of aluminium, zinc, and copper, alongside low visible inventory, raises questions about the destination of these metals.
Green Demand's Role in China
In China, sectors related to green energy, like new energy vehicles and renewable power generation, have seen robust growth. The country's aggressive expansion in solar and wind power capacities indicates a strong push towards meeting climate targets.
