SHANGHAI, Oct 11 (SMM) –At the "SMM LME LONDONE EVENT" held during LME Week, Wang Yanchen, Managing Director of SMM London Office, has analyzed the dynamics of China's base metal market.
China’s economy: A glimmer of hope
The pressure for economic recovery still exists, but the dawn of China's economic tunnel has emerged.
The overseas economy is weak and China's exports are still under pressure. However, domestic consumption, intellectual property rights and independent innovation continue to grow. It is expected that CPI will recover moderately and ease in the fourth quarter.
Uncertainty over global economic developments continues to drive household savings, but high savings can support future spending.
As Chinese household deposits increase, the growth rate of money supply M2 is greater than the growth rate of M1.
Despite the introduction of new support policies, the development status of the real estate market itself is still facing tests, and this may become a long-term situation.
The area of homes for sale in China has reached a record high, and record low floor space will affect future demand.
Auto production rose 7.4% in the first eight months, with booming demand for electric vehicles in particular supporting demand for nonferrous metals.
In the first eight months of 2023, China's automobile production was 18.2 million units, a year-on-year increase of 7.4%.
China will export 4.5 million vehicles in 2023, of which 1.5 million will be electric vehicles.
Investment in power generation and grids supports base metals demand, particularly for renewable energy.
Solar energy and wind energy account for 41% and 25% of total investment in power generation respectively. As more renewable energy power generation projects are built, new transmission lines are needed.
Thanks to high temperature weather, the output of air conditioners and refrigerators will increase significantly in 2023.
Overview of copper, aluminum, zinc and nickel markets
Base metal prices disappointed in the first half due to weak demand, which improved after June.
Due to exchange rate fluctuations, the arbitrage window requires a larger Shanghai-London ratio.
In China, aluminum and copper prices have outperformed nickel and zinc prices.
Loose supply of raw materials and electricity has allowed producers to ramp up production as they still have room to make profits.
In the first eight months of 2023, China's copper cathode, primary aluminum, refined zinc and refined nickel production increased by 12%, 3%, 10% and 35% respectively.
Import growth rates of base metals vary due to different reasons such as arbitrage, geopolitics, and supply.
In the first eight months of 2023, China imported more primary aluminum and refined zinc, but copper cathode imports fell by 8.8%.
Inventories of all major base metals in China remain low, which is the main factor supporting prices.
In 2023, inventories of cathode copper, primary aluminum, refined zinc and refined nickel will remain at low levels.
The driving force for China's copper consumption growth comes from the automotive and renewable energy industries, which require the import of more copper raw materials such as copper concentrate and scrap copper.
In the first eight months of 2023, scrap copper imports increased by 7.3% year-on-year, and China needs to import more copper concentrate to meet the needs of the renewable energy industry.
Low-carbon emission primary aluminum production is expected to increase in the future. It is expected that China will export approximately 300,000 mt of aluminum semi-finished products to the 27 EU countries in 2023. This may be affected by the CBAM (EU Carbon Border Adjustment Mechanism) in the future.
China will need to import more zinc concentrate from other countries in the future to meet demand
In the first eight months of 2023, China's zinc concentrate imports increased by 25%, and China's galvanized sheet exports increased by 16% in the first eight months.
It is easy for nickel producers to adjust their product mix according to market conditions, which makes the pricing of nickel products more complex.
More refined nickel capacity is expected to come online in China in 2023 and 2024, and the nickel price premium relative to nickel sulfate is the main driver of high nickel production.
Summary
Although the central and local governments have issued a series of policies to support the property market, it still takes some time for the policies to be transmitted to the property market, which may slow down the speed of China's economic recovery in the short term. We believe that China's real estate market will not cause serious damage to the economy, but in the long run, the Chinese economy needs more new driving forces, not the real estate industry.
When China's real estate industry loses momentum, green development comes to the fore. Future growth in demand for base metals depends on the development of renewable energy industries such as electric vehicles, solar energy, wind energy, etc., which will offset the demand loss caused by the weakening real estate market.
Chinese companies will continue to promote economic globalization, not only to gain market share for their products, but also to ensure the supply of their raw materials. China needs to import more copper concentrates, nickel ores and intermediate products, zinc concentrates and bauxite for the base metals industry. More investment from Chinese companies will also help local economic development.
