[Asia Economy Reporter Song Hwajeong] Non-ferrous metals are expected to lead the recovery of the raw materials market in the second half of the year. Expectations for the raw materials market are also rising due to the increase in industrial raw material prices and the anticipation of economic recovery following the novel coronavirus disease (COVID-19) pandemic.
According to Daishin Securities on the 30th, the recovery trend in the raw materials market became prominent after the second half of this year. The returns within raw materials were in the order of non-ferrous metals, gold, agricultural products, and crude oil. Non-ferrous metals and gold ranked among the top in returns within the asset market.
Kim Sohyun, a researcher at Daishin Securities, said, "Compared to the first half of the year, the notable change is the price increase of raw materials with industrial characteristics," adding, "The background for the price rise of industrial raw materials (non-ferrous metals, iron ore, and precious metals excluding gold) can be attributed to expectations of increased demand originating from China." Among major countries, only China, where the COVID-19 situation has calmed the fastest, is showing a clear economic recovery trend. China has a high proportion of demand for raw materials with industrial characteristics. Additionally, the weak dollar and prolonged supply disruptions in major mining countries due to the resurgence of COVID-19 have also contributed to the price increase.
The weak dollar is also favorable to the raw materials market. Researcher Kim said, "The increasing pressure of dollar weakness toward the second half of the year could lead to expanded raw material demand and improved investment sentiment," explaining, "As COVID-19 subsides, raw material demand is expected to gradually increase, and if the pressure of dollar weakness intensifies, it could enhance demand growth effects in major raw material importing countries. Speculative capital inflows into raw materials to hedge against the depreciation of dollar-denominated assets may also continue."
Looking at recent financial capital trends in the raw materials market, speculative capital inflows are increasing in commodities excluding the energy sector. Researcher Kim noted, "Speculative capital inflows into copper within non-ferrous metals are particularly evident," stating, "As of the 15th, the net speculative long position in copper by the U.S. Commodity Futures Trading Commission (CFTC) was 59,000 contracts, the highest since June 2018," and added, "Since switching from a net speculative short to a net long position in June, the upward trend has continued."
Non-ferrous metal prices have already recovered from the price declines caused by the COVID-19 outbreak. Among non-ferrous metals, the price increases of zinc and nickel, which are used in alloy steel, have been prominent. This is because steel production in China has recently increased. For the future sustained rise of non-ferrous metals, the containment of COVID-19 is considered the most important factor. Researcher Kim said, "Among economically sensitive raw materials, investment in industrial metals is preferred over crude oil," explaining, "This is because policies for economic recovery after COVID-19 are expected to particularly require non-ferrous metals within raw materials." She added, "Only when COVID-19 is contained can economic stimulus measures in major regions outside China become visible." China accounts for 52%, 55%, and 49% of global demand for copper, aluminum, and nickel, respectively.
Within non-ferrous metals, copper and nickel are expected to be promising. Researcher Kim said, "Copper demand is expected to increase in new infrastructure investments, including traditional infrastructure," and added, "In the case of nickel, stainless steel demand centered in China is expected to recover, and the long-term growing demand for electric vehicles will also support nickel price increases."
© The Asia Business Daily(www.asiae.co.kr). All rights reserved.
