Industrial metals Copper, aluminum & Co: support for metal prices

China remains steadfast in its strict Zero Covid course. “Perseverance brings victory,” President Xi Jinping affirmed a few days ago, although reports of growing resentment and problems with the food supply in the metropolises under lockdown are increasing and the number of cases in Shanghai has not fallen even after more than two weeks .

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At the same time, the economy suffers. According to a Reuters survey of 41 economists, economic growth in China will slow to five percent in 2022 due to the corona outbreaks and the consequences of the Ukraine war, after 8.1 percent last year. The economic data for March are likely to have deteriorated significantly, explained the analysts at Société Générale: “But that would only be the tip of the iceberg, as the economically damaging lockdowns only started in mid-March.”

Loose monetary policy

Observers assume that the Chinese leadership wants to maintain the strategy of strict containment of infections at least until the party congress in November. In order to still achieve the targeted economic growth, it has to support the economy – a question of prestige, especially in view of the party congress, where President Xi wants to secure a third term in office. The Chinese central bank will lower the banks’ minimum reserve ratios in good time and also use other monetary policy instruments, state media reported. Lower interest rates are therefore also in prospect.

Energy transition creates demand

There are already “corona bubbles” in various companies with strict contact and testing regimes that make it possible to maintain production. This practice is likely to be expanded further. Together with the expected loose monetary policy, this could further boost demand for base metals. The copper price already rose sharply at the beginning of the week due to additional expected supply bottlenecks. Like Europe and the USA, China is also planning a significant expansion of renewable energy production. This speaks for rising prices, especially for copper, nickel, zinc and aluminum.

Because while a natural gas-fired power plant needs a ton of copper to generate one MW of electricity, it takes twice as much to produce the same amount of energy with onshore wind, and three times as much for photovoltaic panels, according to the International Energy Agency (IEA). The same applies to electric vehicles, which use three to four times more copper than their internal combustion engine counterparts.

With the Wisdomtree Industrial Metals ETC (WKN: A0KRKG) investors bet on the price development of a basket of industrial metal futures. The copper component has the highest weighting at 33.5 percent, followed by aluminum at 29.9 percent. Zinc comes to 20.6 and nickel to 16 percent. The annual fee for the certificate is 0.49 percent. There is a currency risk against the dollar.

Image sources: Michael Lange/Aurubis AG, Gemenacom / Shutterstock.com