Copper ended the previous year with a gain of 2% while aluminium and lead prices lost 1% and 4%, respectively. In the meantime, zinc was the worst-performing metal in the group shedding more than 14% in the domestic market and 10% in the overseas market.
The decline in prices was primarily due to slowing economic activities in major economies, which has dented demand amid the growing supply of some base metals.
China is the largest consumer of base metals and consumes around with 50% of global output. In 2023, the manufacturing sector in the country contracted in seven out of the last eight months. The crisis in the property sector and mounting inflationary risks in the country led to tepid demand for industrial commodities throughout the previous year.
The global economy has been facing structural macroeconomic challenges. The two-year-long Russian–Ukraine conflict, Hamas’s attack on Israel and Israel’s military response pose significant challenges to the global economy and consumption in 2023.
The US and European manufacturing sectors also reported a steady contraction. Europe’s factory activity contracted to 18-month lows and other indicators suggest the bloc is now in recession. Likewise, the US manufacturing sector shrank heavily due to higher interest rates.
Mounting interest rates dragged global growth by increasing the cost of borrowing and reducing consumer spending and business investment. The US Federal Open Market Committee (FOMC) raised interest rates four times in 2023, causing high borrowing costs worldwide. There are forecasts that the price outlook for metals will continue to be neutral in 2024 as the markets are likely to be tightly balanced. The key risks to the price prediction include weaker demand from China and other developed nations and the escalation of geopolitical tensions.
Meanwhile, China’s stimulus measures, industrial recovery in key consuming nations and the US Federal Reserve rate cut would be the positive macroeconomic factors that could shape metal prices in 2024. Government spending programmes in China, Europe and the US can also support the energy transition and infrastructure development that require metals.
Though the broader manufacturing demand is projected to be treading water, the green demand sector is likely to flourish this year. To meet climate targets, countries like China and India are boosting the renewable energy sector by rapidly building out solar and wind power generation capacity. This may provide an increasingly important new cycle booster to the base metal complex.
On the supply side, barring copper, other base metals are projected to be oversupplied this year. After a series of high-profile mine disruptions and suspensions in 2023, copper now has the tightest fundamental outlook having a refined market supply-demand deficit this year.
The other base metals like aluminium, zinc and lead are mostly oversupplied this year as well. Though aluminium demand growth may improve, a similar pace of primary production is on the cards. Lead and zinc market surplus may be expected from a small surplus in 2023 to a bigger surplus due to weak fundamentals.
(The author is head of commodities, Geojit Financial Services)
(Subscribe to ETMarkets WhatsApp channel)
Download The Economic Times News App to get Daily Market Updates & Live Business News.
Subscribe to The Economic Times Prime and read the Economic Times ePaper Online.and Sensex Today.
Top Trending Stocks: SBI Share Price, Axis Bank Share Price, HDFC Bank Share Price, Infosys Share Price, Wipro Share Price, NTPC Share Price