Where is Chinese industrial metals demand heading

Global weaker PMIs are pointing to slowing industrial activity, which in turn is weighing on industrial metal prices. The precious metal gold has outperformed copper and the copper-gold ratio has touched the lowest level since 2016 moving in tandem with lower bond yields. Copper, representing a broader industrial basket, has priced in further demand risks, whereas gold is benefiting from the growing desire for safe-haven assets.

The diverging moves of copper and gold have broader repercussions for the rest of the commodities complex, as pessimism in industrial metals and oil markets tends to be self-fulfilling, and sometimes constructive supply dynamics just can’t do very much.

The recent price action in both copper and oil markets is a testament to that as demand concerns outweigh constructive supply pictures. Our trade team believes ‘trade tensions will escalate over the next couple of months, which will add to economic headwinds and result in weaker growth’.

Given the significance of Chinese industrial metals demand relative to global demand, along with the fact that it has been a key driver of growth in the past, we take a look at Chinese metals demand.

1. Infrastructure investment will be key
2. Power sector largely depends on seasonality
3. Prolonged property completions
4. Vehicle sales leads zinc into trouble  

Bottom line

Our takeaway is that the outlook for the demand for industrial metals is really a mixed bag. Some sectors are certainly a concern, some we are hopeful about while others continue to be resilient and lead demand growth.

Our base case is that metals demand will find support from Chinese fiscal stimulus measures but only moderately. However, there is still plenty of uncertainty, and this will depend largely on how trade talks between China and the US progress, along with prospects for global growth.