Iron ore weakness to continue into 2025 and beyond, says Fitch Solutions’ BMI
Looking beyond 2024-2025, BMI analysts maintained their view that iron ore prices will likely follow a multi-year downtrend.
It’s only 12 January and the copper price is down 8% year to date.
March futures in New York dropped to $1.9525 a pound (just over $4,300 a tonne) early on Tuesday and by the close on the Comex continued to languish at levels last seen March 2009.
For a sustained period below $2 you have to go back a decade at the early days of the China-induced supercycle.
China is responsible for nearly half of global metals demand and its slowing economy is at the heart of not just the commodities sell-off but the rout on global stock markets as well.
Given the extent of fear in the market few are factoring in industry fundamentals, but it’s worth remembering just what a different beast China is today versus a decade ago.
And with copper so closely tied to the country’s economy the chart below should give metal bulls some hope.
China’s economic expansion is expected to slow to its lowest level since 1990, but measured in billions of dollars Chinese gross domestic product growth paints a totally different picture.
Source: Capital Economics
The country would be adding some $800 billion to GDP (and that’s excluding Hong Kong) this year and over $1 trillion by the end of the decade.
That’s greater than the size of mainland China’s entire economy in 1994, when growth rates peaked at a stunning 30% year-on-year. $800 billion is also bigger than Switzerland’s economy and worth almost 2 South Africas and 4 New Zealands.
Caroline Bain of Capital Economics says the chart suggests that a plausible rate of Chinese economic growth from here (8% nominal, or 6% real plus 2% inflation) “would be consistent with some recovery in copper prices, even if growth is less commodity-intensive.”
The house view at Capital Economics for the copper price is one of the more bullish predictions: $6,000 a tonne ($2.72 a pound) at the end the year. And as Bain points out this may be an ambitious target, but don’t forget the red metal peaked at $4.50 just five short years ago.
5 Comments
rodcha
This would give some indication only if you still believe in those GDP numbers and projections, which more and more mainstream analyst have come to distrust. Some of them, with more reliable estimates, indicate that China may be growing only 3-4% if anything at all.
Now, if most of that growth is attributed to the service sector, manufacturing could be nearing to a contraction. If this is the case, the prospects can only be bearish for copper and co.
Steve
I think the chart says a lot. We are heading for 2004 number. The last ten years have been an all-in gamble on the Chinese Bubble. Well gang, the bubble is loosing air… real fast.
EMILIO ZUNIGA
If China stop falling down in GDP growth that will make good news. But looking ahead the growth of GDP won’t demand the same amount of metals as before, since they want consumption not investment to pick up. The big question is, with all the energy and metals around the level of 12 years ago, could this eventually translate to capex and opex 12 years back? This means a rebalancing of supply and demand also in relative prices, before a new grwoth cycle starts.
marpy
The chart needs to be re worked with the more realistic assumption of 6% growth.
rayban
China , should have listened to Geitner and allowed their currency to rise 4 years ago . They did not empower their people . Communism is thinnly veiled dictatorship of a few rich taking advantage of people without guns or decent rights . China is a one way show of exporting because the old line communists do not let their kack boots off the peoples neck . You cannot teach old dumb commies new tricks .
China now known world over as not so good , their exports less welcome , their attutude disturbing at a minimum , their various rehtoric stupidly insulting and their ability to run a financial country very questionable .
China has perhaps shined it best already and has less to gain now and a populace of poor sick downtrodden slaves .
Not a good picture .