China’s shifting taste for metals

In April the global economic report of the International Monetary Fund said that China’s hunger for commodities is far from being satisfied any time soon.  Most importantly it said that demand is likely to switch from and emphasis on iron ore and copper toward higher value commodities such as zinc.  Maybe this is because zinc demand is largely driven by its use for galvanizing steel in the production goods such as cars and white goods which the poor aspire to own.

I also note in China that Dezheng Resources pledged the same stock of base metals in its warehouses as collateral to several different lenders.  Is this the tip of the iceberg?  The multiple leveraging of metal stocks sitting in depots to effectively finance some of its consumption is surely commerce with the stability of a house-of-cards.  Like many things in China the scale of these activities is hard to quantify and to gauge its relative importance within the market.  What this may point to is increasing volatility along an upward trajectory in the price of zinc and other base metals.

I was also encouraged but not surprised to see that Standard Bank has increased its 2015 price forecast for zinc by almost nine percent to US$2,240.  I still think this is a conservative outlook but what would I know.


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