Market: Zinc, nickel, copper… The striking fall in the stock market for base metals

(BFM Bourse) – The vast majority of these ordinary metals have been falling sharply since the end of January, weighed down by a disappointing recovery in China, the largest consumer of these metals. Even precious metals are not immune to this bad trend.

The prices of base metals have taken a beating on the markets. After an ups and downs in 2022, with a surge in February due to the outbreak of war in Ukraine and then a sharp decline in the months that followed, these commodities had started the year rather well.

The month of January had enabled them as a whole to record good increases thanks to the end of health restrictions in China, synonymous with the resumption of activity in the second largest economy in the world. But that didn’t last long.

“The surge in metal prices at the start of the year reflected optimism about a robust recovery in China and an improving global growth outlook. However, this optimism faded in the first quarter of 2023, as growth mainly driven by consumer spending in the services sector – a trend that is expected to persist through the end of 2023,” the World Bank explained on its blog.

It shows pronounced declines for all base metals since the end of January: zinc lost 31.4%

, nickel dropped 27.5%, aluminum 14.9%, copper 6.5% and tin 2.2%, as shown in the infographic below. Only lead is moving in the green (+3.4%). Note in passing that precious metals are not spared either.

The recovery of China in question

The horizon is far from clear at the moment, with a deteriorating economic situation in both the United States and Europe and disappointing activity indicators in China, which remains the major consumer of base metals, with example 55% of world consumption for refined copper, according to Fitch.

“It’s the big unknown, is China really getting started?”, wondered at the end of May on BFM Business Philippe Chalmin, economist and author of the CyclOpe report. “For the moment the Chinese economic recovery has nothing extraordinary,” he said.

“Macroeconomic disappointments, particularly in the manufacturing industry, are clouding the short-term outlook,” UBS said in a recent note.

Production surpluses

Zinc in particular suffered from a recovery in production, with smelters in Europe in particular benefiting from a lull in energy prices to relaunch their production after difficulties last year. The World Bank expected, in a report published in April, a fall in prices for this metal of 20% over the whole of 2023.

Nickel prices are also suffering, even though the metal, which is extremely important for the production of batteries for electric vehicles, benefits from robust demand prospects.

This is because production is intensifying, especially in China and Indonesia. The bank UBS thus anticipates a surplus of 105,000 tons on the market this year, evoking an “over-supply”. “Nickel supply from Indonesia has been robust and the pipeline of new projects is widening,” she notes. “The development of nickel-free batteries for electric vehicles, already underway in China, poses a risk of clouding the long-term outlook for demand and prices,” said the World Bank.

Lead has recently regained strength and has thus been rising since the end of January but remains down 4% over the whole of 2023. If it falls much less than nickel, this metal is in a very similar situation. , while 85% of demand is for the production of batteries, two-thirds of which for cars. Here too, UBS anticipates a surplus of around 38,000 tonnes in 2023, with production increases in Australia, Russia, Kazakhstan and Alaska.

Still large stocks for aluminum

Aluminum suffered from disappointments on demand with a failed take-off in China and a contraction in Europe and the United States, again underlines UBS. There are also problems on the supply side, however, with problems at European smelters and power shortages in China due to drought that has weighed on production from hydroelectric dams. The World Bank, however, anticipates an increase in production capacity for this metal, thanks in particular to the end of logistical bottlenecks, and forecast in April an 11% drop in prices this year.

“Aluminum prices remain exposed to short-term fluctuations as inventories are at relatively comfortable levels,” Fitch said.

As for copper, it was held back by disappointing demand from China, whether for construction or manufacturing. However, UBS considers that current prices underestimate both the strong demand for copper in a context of energy transition in which the metal has a number of applications, as well as the tensions on production. Chile, Peru and the Democratic Republic of Congo have recorded various difficulties, such as social problems or restrictions in the use of water.

Used in the electronics industry, particularly in computers and mobile phones, tin held up better than other base metals, despite weak Chinese demand. This is due to mining bans in Burma’s Wa region and production export restrictions in Indonesia, as Fitch Solutions points out.