• Industrial metals prices still down from their 1 January 2015 level
• Dollar strength will limit strong gains for base metal prices, despite good fundamental support
• Global steel and iron ore prices will remain soft this year on global overcapacity
China manages slowdown; India to be the new growth engine
While most economies in Emerging Europe are expected to show decent growth in the coming years, Russia and Ukraine are sinking into a depression, dragging the regional forecast down. The US economy is expected to perform solidly, despite the relatively slow start in early 2015. While the dollar’s appreciation will negatively affect US exports, we think US household consumption will receive an impulse from lower import prices. Meanwhile, we expect economic growth in Emerging Asia to remain strong. India will be the new growth engine, surpassing China this year and next. Metal demand in India will be buoyed by government infrastructure spending. Due to the ambitious economic reform plans in China, growth is expected to slow. We expect that the slowdown will be gradual during 2015/16, and think the authorities will remain prepared to add support to prevent a hard landing. But the gradual slowdown of the Chinese economy will have a downward effect on overall metal demand.
China industrial metals consumption growth set to slow
China is still the world’s biggest producer and consumer of metals. On average, China accounts for 43% of global production of base metals and 48% of consumption. Needless to say, economic data coming from China and other developments have left their mark on international metal markets, particularly as regards consumption. Alongside the deterioration of GDP growth per capita in China, demand growth for base metals per capita is decreasing. This is also the case for per capita steel production growth. In fact, China’s Iron and Steel Association has forecast a 1% decrease in the country’s crude steel output in 2015. This indicates that steel production per capita will also decrease this year for the first time in decades. Although the slowdown in China will also have negative implications for demand in base metals markets, growth in demand for base metals remains likely. We are projecting that per capita demand for Chinese base metals will grow by 7% and 8%, respectively, in 2015 and 2016. This is low in historic terms, but still provides a solid base.
Industrial metals prices still down from 1 January levels
Industrial metals prices have been struggling this year. While base metals prices have lost from 1-17% since the start of 2015, prices in the ferrous industry dropped more sharply. Iron ore fell by 33%, global steel prices decreased by16% and coking coal declined 7%. Prices in the base metals industry came under fire from the dollar’s strength, the drop in the oil price and weak sentiment (especially with respect to China). The main concern for stakeholders is China’s relatively weak economic performance and the resulting slower demand for industrial metals. Good macro numbers from the global economy (particularly the US and Europe) were not able to shift general sentiment in base metal markets. However, since 1 April prices for copper and zinc have been showing some cautious signs of recovery.
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