Analysis of macroeconomic factors indicate high demand for Copper, Iron Ore, and Crude Oil as China's infrastructure stimulus package drives commodity market, while decarbonization pushes for investment in metals.
Pedestrians on an overpass in Beijing, China, on Friday, Feb. 3, 2023
China’s rebound, through the loosening of their zero covid policies, has been the main driver of a grand commodities rally. The country's economy is recovering faster than the rest of the world, and the massive infrastructure stimulus package will drive the commodities demand.
Perhaps, it was common thought that the geopolitical tensions surrounding China would affect their production chain. But the Asian giant proved they are still the largest global consumer of commodities, accounting for over half of global demand for several key commodities, including copper, iron ore, and crude oil. Their demand for these commodities will continue to grow as the country pursues its "dual circulation" strategy, seeking to boost domestic consumption while increasing exports.
A deep analysis of the macroeconomic factors reflecting on the commodities market led us to a “star” commodity, copper. In 2023 Copper will thrive driven by its role in the transition to renewable energy and the growth in demand for electric vehicles. Regarding iron ore, we expect its prices to remain high due to strong demand from China's construction sector as well as the recovery in global steel production. Subsequently, we view that crude oil prices will remain volatile due to ongoing geopolitical tensions and uncertainty around the pace of the global economic recovery.
In the long term, we expect the transition towards decarbonization and the shift towards renewable energy sources to, most certainly, lead to a decline in demand for certain commodities, such as coal and oil. Whereas, it is critical to point out that the transition to renewable energy will require significant investment in metals, especially copper and nickel, which will benefit the commodity market in the long run.
Written by: Alfonso Egaña, TMT Market Analyst at Sora Capital A.C.
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