Industrial metals outperformed in the third quarter, in part because of China's economic recovery.

China's ongoing policy stimulus has moved into industrial and construction investment and will continue to boost investment and industrial output in the coming months. China will focus on ensuring that investment in domestic metal production is boosted by reducing the environmental impact of new investment.

1. China's economic recovery

China has become a net importer of major metals this year, thanks in large part to the economic recovery. China's ongoing policy stimulus has moved into industrial and construction investment. This will continue to boost investment and industrial output in the months ahead.

Retail sales, though slow to recover in early summer, are now back to pre-epidemic levels. Earlier this year, auto sales supported retail sales, helped by pent-up demand.

2.How long will the recovery in demand last

Buyers of industrial metals may ask how long this can last, with no end in sight. Positive developments in the development of a number of vaccines have raised hopes of economic recovery in other countries.

But a recent analysis by Capital Economics calls for caution. It expects future investment in infrastructure and real estate to come under pressure, which in turn will drag demand for metals and prices, particularly copper. Although it will not adversely affect metal demand in the short term. But the strength of the 2021's spring rebound is likely to wane, and prices in the rest of the world relative to China may begin to normalize. The Shanghai Futures Exchange's premium over the LME has been close to record highs, in large part because of China's recovery relative to the rest of the world. However, this disconnect will not last indefinitely.

3.Looking ahead

The vaccine will help the rest of the world return to pre-outbreak levels later next year, first in the United States and then in Europe. In the future, China will focus on ensuring that the impact of new investment on the environment is minimized and investment in domestic metal production may be boosted. As a result, demand for imports of refined metals should fall, further weakening support for prices later in the year. While the current price strength is likely to continue into 2021, prices could return to or even below current levels by the end of next year.

Source: Mandarin Finance