Base metals prices have fully unwound the +20% lockdown-driven 1Q20 sell-off as metals-intensive Chinese stimulus measures have driven a sharp V-shaped recovery in demand. We expect Chinese metals demand to remain strong until China’s credit cycle peaks somewhere in 3Q21 but recent signs of overheating in the property sector, a major driver of end-use metals consumption in the country, have raised some red flags. Past performance shows that a reluctance to stimulate the housing market in China can weigh heavy on base metals prices, even if other sectors like infrastructure and manufacturing remain supported. While property investment remains strong for now, too much of a good thing can have future consequences and the evolution of property policy in the coming months bears watching given the potential drag it could add to the base metals sector.
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