Davis Index: Market Intelligence for the Global Metals and Recycled Materials Markets

Strong demand recovery in China improved base metal prices in June but major mines in South America are yet to operate at full capacity or are still under suspension amid the pandemic. Disruption of mining activities has led to a reduction in zinc and lead surplus while concerns over a second wave of infection have impacted demand and kept metal markets on their toes. Davis Index spoke to base metal experts from Religare and Angel Broking to gauge their outlook for the September quarter. 


Sugandha Sachdeva, vice-president Metals, Religare Broking

Copper witnessed its best quarter in a decade with stellar gains of close to 23pc on MCX and LME, while other industrial metals joined the rally posting decent gains, even though lead remained quite subdued. The pace of recovery in copper prices has been quite striking, despite the global distress caused by the pandemic. Demand revival in China, supply chain disruptions in Chile, the top copper-producing country, and hopes of an economic recovery fanned the steep rise in copper prices, pulling it up from four-year lows tested in March. 


Overall on a macro level, risk appetite improved as countries are reopening and economic activities are coming back on track gradually, leading to a pick-up in global demand. Major central banks acted timely with an overwhelming liquidity push, which has eased the strain caused by the crisis. 


Recovery in China has been much faster which is now discernible in economic indicators. China, the key demand driver for all the base metals saw its manufacturing activity rebound in June, hitting its highest level since December 2019. The country also continues to increase its spending in the metal intensive infrastructure, a positive sign for the demand outlook. Net imports of refined copper have surged by 12pc year-on-year to 1.38mn mt in the January-May period. China is also estimated to be on a copper stock building spree. However, exports of the metal, which are currently under pressure, need to recover. 


Additionally, as the US economy continued its reopening albeit with some pauses, upbeat economic data sets are indicative of a rebound in business activity. Easing market nerves further, the key US non-farm payrolls rose by 4.8mn jobs in June, the most since the government began keeping records in 1939. 


On the supply side, the pandemic continued to disrupt mining activities. Global zinc and lead market surplus have narrowed down in March which has led to a recovery. However, rising concerns of a second wave of virus infections and uncertain global economic outlook could keep prices under check at higher levels. 


It seems the market is largely ignoring the demand side damage caused by the pandemic. Also, the summer season in China which is generally seen as a construction slowdown period could see the demand waning. In a nutshell, the simmering US-China tensions and the pandemic concerns are going to drag metal prices, where they look primed to succumb to some selling pressure, but signs of economic recovery amid improving economic indicators, accommodative monetary policies around the globe and supply-side concerns could underpin metals’ prices going forward at lower levels.


Yash Sawant, research associate Commodities, Angel Broking 

The recent bounce back in the base metal spectrum was led by the supply shock caused by the pandemic and revival in demand from top metal consumers, China. Global demand, albeit weak, also supported prices.


Zinc, aluminium and copper Inventories on the SHFE decreased over 40pc, 50 pc and 70pc, respectively from the year’s high recorded in March 2020. The falling inventory levels coupled with an increase in metal prices indicate strengthening demand from China. A solid revival witnessed in China’s manufacturing and service sector has been the primary reason behind rising industrial metal prices. Moreover, supply distress arising in nations like Chile and Peru, major producers of Copper and Zinc, due to the spread of the pandemic further provided some support.


Going ahead, extraordinary support vowed by major central banks might underpin the demand prospects for industrial metals. 

However, a soaring number of fresh COVID-19 cases after nations lifted the lockdown restrictions have slashed the hopes of quick economic recovery and clouded the outlook for base metals.


Several states in the US and China have reimposed lockdowns to contain a second wave of the virus. Gauging the exact impact of the pandemic seems to be difficult as it might further disrupt the industrial metal supply chain. 

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