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Menke Still Cautious On Industrial Metals

Carsten Menke, Commodities Research Analyst, Julius Baer, urges caution on the industrial metals sector. In a release, he said

"The industrial metals ended the past year on a very strong note with prices up more than 10% from the early-December lows. As for most of 2017, the upmove was broad-based, suggesting it was driven by an overall optimistic assessment of the global growth backdrop rather than any metal-specific factors. While we generally share this optimism, we still believe a more granular view needs to be taken when assessing the implications for the industrial metals. The focus should be on China as it accounts for roughly half of the world’s metal demand. Signs of weakness have been emerging in its ‘old economy’ more recently, i.e. metals-intensive sectors such as infrastructure and property. And without sounding too pessimistic about global growth, we need to acknowledge that the likelihood of a slowdown is bigger than that of an acceleration. Despite the prevailing positive mood in financial markets, prices are down slightly since the start of the year. Aluminium has lost around 3% as the market does not show any signs of tightening despite two months of heating season capacity cuts in northern China. Inventories continued to build in recent weeks, casting more and more doubts about the officially reported production figures. Barring interference from the Chinese government, we believe the aluminium market should remain well supplied and prices should come down from today’s levels. Hence, we stick to our cautious view on aluminium and the industrial metals overall. With a lot of global growth optimism priced in, signs of a slowdown should cool bullish sentiment and pressurise prices.

The outlook for industrial metals demand is much more driven by parts of the Chinese economy than by the global economy. As the property markets is showing signs of weakness and as fiscal spending is receding, the demand outlook is softening rather than strengthening. Hence, we maintain a cautious view on the sector."