Base metal prices flare up on China reopening, dollar weakness

What's Buzzing 

MCX Copper rallied to a seven-month high as demand prospect improved after China's reopening. 

Context 

Base metal started this year on a positive note and is likely to continue with the trend. Industrial metal moved higher amid improving demand outlook from China after it reopened its borders. Further, expectation of more stimulus measures from China to revive its economy and its languishing property sector buoyed prices. Apart from this, weakness in the dollar provided support to prices.

 Our Perspective 

We expect industrial metals to recover from their previous year’s lows. There are various factors supportive for base metal prices to rally this year: a) pause in rate hike, b) market deficit, c) China reopening, d) stimulus packages from China to revive its economic growth and ailing property sector and (e) record low inventories. 

Copper 

We expect copper prices to rally till Rs 850 on MCX amid supply concerns from Peru and Chile and low inventories at registered LME warehouses. Supply disruption is seen in Chile's mine, which accounts for 25% of world supply due to workforce woes, operational and geotechnical issues and water shortage. Moreover, supply disruption was witnessed in Peru's mine, which accounts for 10% of world supply due to protest by local communities in key mining areas. Additionally, China has started relaxing its Covid-19 related restrictions raising hopes of an economic recovery and has progressively stepped up support for property sector. Demand from infrastructure, cleaner energy and electric cars will also support copper prices. 

Aluminium: 

We expect aluminium prices on MCX to rise till 260 levels amid supply crunch and low inventories. Soaring energy prices in Europe have triggered cuts in energy intensive production of aluminium. Europe has cut down production by 1.4 million tonnes and US by 300,000 tonnes. Also, Chinese smelters are facing constraints as the country continues with its lower carbon emission policy. 

Zinc 

We expect zinc prices to surge till 350 levels on depleting inventories and tight supply. Global demand for refined zinc is anticipated to increase by 1.5% in 2023 to 13.99 million tonnes and production is forecasted to increase by 2.6% to 13.84 million tonnes putting market in deficit of 150000 tonnes. Further, crude steel production is likely to increase in 2023. China’s measures to boot infrastructure investment and stabilise real estate market will support positive growth in steel demand. 

Lead 

We expect lead prices to rise till 200 levels on low inventories and as lead market is expected to remain in deficit for a second consecutive year. Global demand for refined lead metal is anticipated to surpass supply in 2023 with extent of deficit forecast at 42000 tonnes. Additionally, efforts to contain greenhouse gas emission and demand in backup power storage are expected to support lead prices.