Industrial metals complex
There is so much difference in individual metals. Observing the supply data, it is actually the demand side of the fundamental ledger that has dulled the metals’ shine.
The most interesting part is that China is impacting the whole market with its ”metal operations.”
As the last year metals were caught out by the firm policy of stimulus last year, they were having a nice back up. Now, industrial metals are reacting really negative to Beijing’s shift to policy constriction.
Watching the market analysts and their comments, it appears that China came from metallic buy to metallic sell.
The real question is, are they wrong?
Firstly, at the beginning of process, The first commodity which sent signals about the change of stance in China’s policies was definitely Iron Ore.
Same time last year, the Dalian contract heralded a new stimulus: infrastructure and property grows and nice trends in recovery of these. Now, the current slide in its growth has indicated that the Chinese policy cycle maybe started again.
”It’s noticeable that volumes and open interest have picked up as Dalian iron ore has fallen, suggesting it is being used to express a negative view on China’s immediate growth prospects.”
”Speculative money has been steadily leaving the market over the recent weeks with money manager net length sliding pretty much across the board since late February.” (Andy Home)
Surely, nickel had the worst hit. Aluminum was the least affected, reflecting the former’s overwhelmingly negative and the latter’s more positive supply picture.
LME broker Marex Spectron’s alternative explanation is that money men are net short on zinc, nickel and tin. They are neutral on lead, and marginally long on copper.
Aluminum is the only one showing a sizeable net long. And even that is much reduced relative to earlier this year.
A change of the cycle
Secondly, seems like the metal markets are actually ”dancing on” a pre-written script.
Observing the London LME Week last October: Back then, everyone was short-term bullish but medium-term wary on China.
That time, there existed a thought and agreement amid consensus, that the Beijing stimulus package will impact the second quarter of 2017. Causing a slowdown in most important metals, who are main important parts of the Chinese economy.
The fears of past now seem to have a very good sense.
Beijing aims to force banks to clean their data, and adjust their balance-sheets. This stimulus given by a government was meant to inspire the events of calculating the good position of Beijing’s financial institutions and banking system.
But as a result, industrial production and fixed asset investment growth happen to have slowed down meaningfully.
Both official and unofficial purchasing managers indices are falling down, suggesting that manufacturing activity has recently topped out.
And China’s metallic imports are oscillating at subdued levels. Observing the copper imports, they fell down by almost 28 percent y-o-y in the first quarter.
People were expecting all of this actually, in a period six months or little more ago.