China Covid

Metals markets breathe sigh of relief as China eases Covid restrictions |

Going through AG Metal Miner

It may be winter, but it feels like spring for many in the metals industry and for metal prices in general. After years, China plans to ease its COVID-19 restrictions a bit. This includes a reduction in the mandatory quarantine period, which has caused myriad problems for the country’s economy. As one of the largest producers and consumers of metals and minerals in the world, the country’s decision is a hope for many weary buyers and sellers.

Indeed, the decision gave a big boost to the long discouraged metal world. Prices for several industrial metals jumped significantly on Friday after the announcement. Of course, this was prompted not only by the easing of some restrictions, but also by renewed expectations that China would soon completely abandon its zero-COVID policy.

The news sent metal prices soaring

The overall market reaction was immediate. Three-month copper on the London Metal Exchange (LME) jumped 3.4%, the highest since June 22, 2022. Meanwhile, the most traded December copper contract on the Shanghai Futures Exchange climbed 1.5% to US$9,515.30 (67,630 yuan) per tonne. This represented its highest levels in about five months.

Iron ore also rose last Friday. Indeed, January’s top-traded iron ore on the Dalian Commodity Exchange, DCIOcv1, ended the day’s trade up 5% at US$99.86 (708.50 yuan) a ton. Benchmark prices for steel products and other steel inputs also added to the gains. This was to be expected, as China remains the world’s largest steel producer,

So far, the good mood continues to carry over into this week. Copper prices in London rose slightly on Monday and are currently near their highest level in five months. Singapore iron ore futures were also up, climbing 5% to US$95.85/t.

With the exception of aluminum, almost all industrial metals markets appear to approve of China’s easing of COVID restrictions. Indeed, China’s pandemic restrictions were only part of the problem, as Russia’s invasion of Ukraine only exacerbated global trade problems.

China still has a lot of work to do

Many theories exist as to why China initiated this long-awaited about-face. Some suspect that China’s decision to downplay the impact of COVID restrictions had to do with the LME not banning Russian metal. As the metals markets were about to take a dangerous turn, something had to be done.

There is no doubt that China’s zero-Covid shutdowns have had a huge impact on its manufacturing sector and the demand for industrial metals. But that’s only half the story. The other half is the loss of demand in the Chinese real estate sector. This means that this short bull run in metal prices can only be sustainable over the medium term if the consumer market recovers.

So far, the Chinese real estate market has continued to fall from October. Imports of raw copper and copper products were down 1.5% from a year ago. For steel for housing, the drop in demand was almost 30%.

China releases bailout for ailing real estate sector

Fortunately, the Chinese government recently released a 16-point rescue plan for the country’s housing sector. While this is great, it may not be enough to pull the markets out of the doldrums. On top of that, easing COVID-19 also seems a bit tricky at the moment, especially as the country continues to report high numbers of cases almost every day.

Ultimately, it’s important to remember that consumer demand is one of many things that influence investor sentiment. For a market that has been in a downward spiral for 13 months, sustaining the current positivity may become a tall order.

Yes, easing COVID restrictions is a step in the right direction. But the question Chinese officials have yet to answer is the only question the world is asking: what’s next?

By Sohrab Darabshaw

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