Metals viewpoint: New year demand

Tentative signs of a first-quarter uptick in demand emerged this week as metal markets reawakened after the holiday period amid sobering GDP data from China and Germany, and some thawing of US-China trade relations.

Some markets are near or at the tipping point where restocking after an aggressive run-down in inventories last year is giving way to pockets of real spot demand from the manufacturing sector and elsewhere.

European steel could be a case in point — the Argus Northwest Europe ex-works hot-rolled coil index continued to rise this week. The index is up by 5pc since the start of December, driven partly by restocking by service centres and other intermediaries, as well as by recent production cuts and higher input costs. But there was also talk this week of some real demand from the automotive sector.

The automotive sector in Europe, weighed down last year by weakening sales and structural problems partly related to the need rapidly to enter the electric vehicle market, found some respite this week with December data showing a 20pc year-on-year rise in new passenger car registrations. But German GDP growth of just 0.6pc in 2019, down from 1.5pc in 2018 and the slowest rate since 2013, highlighted the fragility of the eurozone economy.

Elsewhere, spot nickel premiums in Europe firmed on increased buying from foundries, always a good place to look to gauge the underlying health of manufacturing. The Argus in-warehouse Rotterdam nickel full-plate cathode premium was assessed this week at $80-120/t, up from $50-100/t a week earlier.

Some of the bulk alloys in Europe also firmed, with the Argus price for silico-manganese and ferro-silicon both assessed higher.

Lunar new year

In China, where markets will soon close for the early lunar new year holiday period, a decision this week to not significantly reduce electric vehicle subsidies from the previous year's levels restored some confidence to that sector and its supply chain, including the market for battery materials. The Argus ex-works China price for cobalt min 99.8pc touched two-month highs. Lithium prices are expected to draw support from China's announcement, although that market continues to struggle to balance supply and demand, with the Argus lithium hydroxide min 56.5pc fob China price and the Argus lithium carbonate min 99.5pc cif China price each down by about 20pc since August last year.

China's 2019 GDP growth data, released this week, were broadly in line with expectations at 6.1pc, the slowest pace for 29 years, a number likely to have been more or less priced into most commodity markets including metals. Base metals mostly eased back after the release of the data, with three-month copper retreating from an eight-month high touched earlier on the week on optimism around the easing of US-China trade tensions.

By Stuart Penson