SHANGHAI, Oct 11 (SMM) – The ongoing 2023 SMM LME LONDON EVENT, being held at ST. Pancras Renaissance Hotel London, Euston Rd., London NW1 2AR, has brought together major industry players and commodity experts to share their valuable insights and unique perspectives on new energy and base metals outlook. Below are the summary of key points from Song Gao, a veteran of greater China macro and policy analysis, Song co-founded PRC Macro to create an economic and financial information services platform to fill in the gaps that exist with respect to analysis of China’s economy. And please stay tuned for more insights we have to offer from the LME Week.
We expect Chinese manufacturing to restock in Q4 thanks to housing completions, energy investment and ODI-induced exports. This will put a floor on metals demand and is sufficient to offset drags from the property slowdown.
• The energy transition - specifically electrification - means greater power demand from Chinese manufacturers and households. The rapid aging of domestic coal mines and unexpected shortfalls from hydropower will likely trigger a supply shortage for thermal coal.
• In the long run, China’s outbound investment to the Global South will accelerate as Chinese firms de-risk slowing domestic demand and growing geopolitical tensions. This outbound initiative has also been facilitated by China’s search for energy and supply chain security and the availability of cheap RMB financing.
• We expect within 10 years, China’s outstanding ODI will rise to ~40% of nominal GDP. The size of China’s annual net ODI flows should increase by 7x by 2045, expanding China’s foreign assets to USD 17 trillion (or the same size as the Chinese economy today). This will fulfill President Xi’s vision for “dual circulation”.
• China’s Sustained and rapid ODI growth will add 11% to demand for steel, 46% more demand for copper and 55% more demand for aluminum in the next 17 years as a function of local industrialization and urbanization in ASEAN and BRI countries. The RMB will play a critical role in financing ODI as it finally becomes a funding currency for global carry trades.
• Vertical supply-chain integration from Moscow-Beijing-Jakarta, facilitated via flows of energy, RMB and infrastructure investment will expand South-South collaboration, triggering a rebalancing of the world order via a new energy-defense-infrastructure axis.
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