What has happened since the beginning of May this year? Because from January to April, base metal prices followed a fairy normal pattern (volatile with some peaks and troughs along the way), reaching a 2015 high early May. General sentiment was doing well during this period but soon after the early May peak, base metal prices started to lose ground swiftly. At the same time, prices for steel continued their gradual decline on weak demand and overcapacity. The positive trend in the first four months suddenly shifted to one marked by less optimism. The shift in sentiment originated from three major metal consuming regions: China, Europe and the US, with three themes dominating the news and depressing base metal market sentiment: 1) worries over growth in China, 2) the continuation of the Greek crisis and 3) the strengthening of the US dollar. These three themes depressed speculative activity in industrial metals, sending prices down.
Going forward, support on fundamentals
Uncertainty and fears about the Chinese economy going forward (and hence metal demand), have had the greatest impact on metal prices. For base metals, prices for nickel and copper have shown the strongest decrease since the start of 2015, while prices for all ferrous metals fell off a cliff. Import demand from China for industrial metals weakened during the first half of 2015 and total import volumes of industrial metals decreased by 4% to June yoy. Iron ore, which is by far the biggest imported material in volume terms, dropped by 1% yoy to June. And as long as China worries, eurozone woes and dollar strength dominate the headlines, sentiment across metals markets will be weak. This will negatively influence speculative activity. Still, we believe the fundamental stance in the base metals complex continues to be strong. It is true that Chinese metal demand (with a 40-45% share in global metal demand) will gradually slow, along with the economy. Nevertheless, 55-60% of metal demand comes from other countries. Hence, given our positive outlook for the global economy, we expect metal demand growth to remain at least stable during 2015 and 2016.