August 14, 2022

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Metals correct 30% of their highs amid recession fears

At the beginning of the year, raw materials, if not most of them, were a major asset to analysts. In our 2022 outlook reports, the good times these assets have been through have been repeated over and over again, with core data promising a supply shortfall for core resources in general, due to a strong recovery in economic activity and associated demand. with her.

however, Changing the strategy of the planet’s major central bankswho are tightening their policy, besides the worst phase of the epidemic that China has experienced since the arrival of Covid, Corrected core resources that had already eaten 10% of the maximum of the year, those played on June 9.

The fall feeds one of the types of raw materials most closely associated with the economic cycle: industrial minerals. If, as it does, industrial production suffers, the demand for these assets is also affected, and Index prices Bloomberg of industrial minerals is 30% below the maximum of the year, on March 7.

In the list of raw materials that fell the most in the year, Wood is the undisputed leader, with losses of 48% in 2022. Industrial metals are beginning to come in behind: tin is down 31% on the London Metal Exchange (LME), lead is down 16% and copper is down 15.2%. Behind it is aluminum, with a 12.8% decline for the year.

For its part, zinc fell 5.9% in the year. The only industrial metal that continues to Green color In 2022, it was nickel, with a rise of about 11% since the first day of the year.

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These drops may be a symptom of what many analysts are beginning to expect: The global recession is coming in the next few quarters. “You have to be careful in allocating and creating portfolios. Investments should be aware of the downside risks to growth, profits and therefore cash flows, but also have some protection in the event that the Federal Reserve goes a tightrope.” Stock selection also remains important in this environment where investors are likely to place increased value on quality,” said Richard Dunbard, head of multi-asset research at Abrdn. “The global economy faces many factors against it, and the most likely outcome is a recession.”

Possible cure

Not all analysts think of a black scenario for economic growth, and Some believe that investors are becoming pessimistic, with the exception that the situation will get worse than it should. This is the case of Citi, which warns that “indicators of our manufacturing activity are showing us that the weakness in April has eased, and there are signs of improvement, especially in China, but also in the United States,” outside the US bank.

Speculative positions in copper indicate a strong recovery in activity in Chinaand we agree, but we remain cautious in the short term,” they note, “because minerals are still in oversupply.”

In the same sense, they point out from Global X that “uncertainty over China’s economic recovery is weighing on copper,” but they recall that “on the supply side, the risk of disruption remains high,” a factor that could lead to a price recovery soon.

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