In 2023, the industrial metal market experienced severe challenges.
Affected by high global interest rates, the manufacturing industry has fallen into recession, leading to a continuous decline in the prices of major metals. The S&P GSCI Industrial Metals Index fell 6% this year. In the domestic market, the non-ferrous metal futures sector has experienced a cumulative decline of over 10% this year.
The year 2023 is coming to an end, and most base metals are in a range of fluctuations, with copper and aluminum prices experiencing strong fluctuations. Recently, copper prices have risen consecutively, with LME copper futures prices rebounding by 5% since early November.
Traders believe that the US dollar continued to decline at the end of the Federal Reserve's interest rate hike cycle, thereby boosting copper prices. However, under the pressure of short-term consumption off-season and uncertain long-term economic prospects, the rebound in copper prices is highly limited.
Looking ahead to 2024, institutions are generally optimistic about the impact of domestic copper demand on copper prices. According to a research report on Guangzhou Financial Futures, it is expected that by February 2024, non-ferrous metals such as copper and aluminum will still be in a seasonal consumption off-season, and prices may show a fluctuating downward trend. But after March next year, as various policies gradually strengthen and stimulate consumption and investment, copper and aluminum prices may return to an upward trend.
Copper demand is "strong internally and weak externally"
Copper prices are seen as a barometer of the global economy.
Over the past year, copper prices have experienced significant fluctuations due to the disturbance of the Federal Reserve's interest rate hike expectations and uncertainty on the supply and demand sides. The LME copper price surged to a high of $9550 per ton at the beginning of this year, then quickly turned downwards, dropping to $7856 per ton. Currently, copper prices fluctuate narrowly in the lower range of $8000 per ton.
Copper, as an important raw material in industry, is particularly affected by the macroeconomic environment in terms of price. At present, the market's expectation of the Federal Reserve's interest rate hike approaching its end has increased, and the macroeconomic pressure on copper prices has weakened.
Meanwhile, as global industrial production gradually recovers, the demand for industrial copper is also increasing. Especially against the backdrop of weak overseas metal demand, domestic demand for copper is relatively strong.
"From the supply side, copper mines have maintained a growth rate of about 2% this year, and the replenishment of recycled copper imports has advantages. However, the demand side is also beginning to face downward pressure towards the end of the year." Zhang Weixin, Chief Analyst of China CITIC Securities Futures' Nonferrous Metals, recently analyzed at the 9th China Market Risk Management Conference in 2023 that from the copper demand side, at the end of the year, automobile companies have entered the stage of destocking, that is, the off-season of automobile production and the peak season of consumption, and the demand for the year has declined.
Zhang Weixin believes that in the long run, the high prosperity of global new energy vehicles will drive a stable growth rate in automobile production; However, in terms of power grid investment, due to the countercyclical characteristics of the industry, there is room for upward growth in the future.
Overall, the downstream demand for copper in China is showing differentiation. Analysis of China International Futures shows that infrastructure plays a supporting role in ensuring stable growth in investment in the power grid, while demand in emerging fields such as photovoltaics and new energy vehicles remains resilient, while the performance of the air conditioning industry is relatively weak.
As the second largest consumer of copper in household appliances, according to data from Shanghai Nonferrous Metals Network, the amount of copper used in household appliances in 2022 was 2.07 million tons, with air conditioning, refrigerators, and washing machines being the main products of copper used in household appliances. The copper consumption of each air conditioner is about 8kg, accounting for about 60% of the copper consumption of the entire household appliance. A single refrigerator uses 3kg of copper, and a single washing machine uses 2kg of copper.
Zhang Weixin predicts that if the domestic economy continues to recover weakly in 2024, there is still room for the central copper price (especially Shanghai copper) to fall. In the second half of 2024, the Federal Reserve may begin to lower interest rates, but the recovery of domestic aggregate has limited boost to prices, making it difficult for copper prices to see a significant increase.
However, Goldman Sachs has a more optimistic outlook. A recent research report released by the institution predicts that copper demand in China will increase by about 2% year-on-year in 2024. Although the growth rate has slowed down compared to the 5% year-on-year growth in 2023, copper will shift towards more severe supply shortages in the second half of 2024, and prices are expected to rise significantly.
Goldman Sachs predicts that the target prices for LME copper next year will be $8400, $8850, and $10000 per ton in March, June, and December, respectively.
Cooling prices of industrial metals
Except for copper, industrial metals such as aluminum, nickel, and lead have all shown a weak supply-demand pattern this year.
According to data from Tonglian, the futures prices of LME nickel, LME lead, LME zinc, and LME aluminum have cumulatively fallen by 42.88%, 14.69%, 9.47%, and 6.18% this year, respectively.
In terms of aluminum, "in 2023, there will be a weak supply-demand pattern, with significant inventory depletion. However, demand will also weaken due to drastic adjustments in the real estate industry, resulting in a temporary shortage of electrolytic aluminum supply, but it will not continue to be short." According to a research report by Guangzhou Financial Futures, aluminum is mainly divided into construction aluminum and industrial aluminum, with construction aluminum consumption accounting for more than 60%. According to estimates, the consumption of building aluminum materials will decrease by more than 20% year-on-year in 2023, but industrial aluminum materials will see a growth rate of over 30% driven by emerging demands such as new energy vehicles and photovoltaic installed capacity. It is expected that the consumption of building aluminum materials will decrease by about 10% in 2024, while the consumption of industrial aluminum materials will continue to grow.
In terms of nickel, with the continuous release of production capacity, there has been no significant improvement in demand for the nickel industry, leading to an exacerbation of overall overcapacity. Gu Jing, a non-ferrous analyst at Yide Futures, said that since the beginning of this year, the main trading logic in the nickel market has been the transformation of the pure nickel supply and demand pattern. With the production of new domestic nickel production capacity, the supply has increased, but due to the time required for capacity ramp up, there has been no turning point in the early pure nickel inventory, which has been at an ultra-low level.
Yang Lina, the head of Nonferrous Metals at Fangzheng Mid term Futures, predicts that the nickel market will maintain an excess situation in 2023 and 2024, and there is a possibility of further decline in the long-term focus of nickel prices. However, in the context of rapid price adjustments, the degree of oversupply is expected to affect the pace of nickel price decline, and attention needs to be paid to the pace of new production capacity deployment in the future.
The Fitch Ratings research report suggests that demand for basic metals will increase in 2024, supported by sustained stimulus measures in China and industrial recovery in developed countries. The institution stated that it is expected that China's aluminum demand will continue to grow in 2024, and battery production will be the key to the growth of nickel consumption in 2024.