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08/15/2022
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Downward shift in global metals prices announces gloomy global economic outlook

Downward shift in global metals prices announces gloomy global economic outlook

Coface experts  analyze the fall of key metal prices, the impact it has on various industry, and what it means on the medium to long terms for the global economy.

The prices of key metals for several industries such as steel, copper or aluminum are in a downward trend. Recently, copper and steel prices have been in a significant decline, reaching their lowest level since February 2021. The second quarter of 2022 saw a 20% decline in copper prices compared to the first quarter of 2022.

 

The pressure on metal prices is likely to continue, according to Coface’s experts. This is due to the fact that the metalworking industry is highly energy intensive, so inflationary pressures on energy inputs such as oil and gas directly threaten it. According to experts, the effects of smoother operations along the value chain and weak prospects for global GDP growth put downward pressure on metal prices. They believe that in the short term, high energy prices and low global demand for industrial products are likely to continue to lead to lower metals production.

 

Coface’s experts predict that the current change in the metals market reflects the upcoming gloomy global economic outlook, which is already visible in many sectors. The main "client sectors" of metals, which are also pro-cyclical, such as construction and automotive, are visibly struggling and are rated by experts as "high risk" in all regions according to the Coface sector risk assessment. Automotive manufacturers are reducing their production volumes (affected by input inflation and lower demand dynamics in general). Construction is particularly hit hard by interest rate hikes conducted by Central banks of major economies such as the US Federal Reserve or the European Central Bank.

 

On the long-term, the evolution of both environmental and social norms should also continue to feed structural evolutions in the metals sector. "There are various challenges related with the metallurgical sector. Global metal extraction involves highly polluting processes. In this regard, China plans to reduce its steel production to meet its climate commitments.”, comments Simon Lacoume, sectoral Economist at Coface and Plamen Dimitrov, Country Manager, Coface Bulgaria.

 

In the medium-term, considering six-month outlook, experts' weak forecast for China's economic growth is expected to continue to weigh on metals sector activity and prices going forward, suggesting a continued downward trend. Coface expects GDP growth forecast below 4% in 2022 in China (8.1% in 2021). According to Coface’s economists, longer lockdowns in China are affecting the country's production capacity. China is the world's number one steel producer, but several brief shocks in 2021 have shown how unstable the country's economic condition is in terms of the construction sector and therefore in terms of steel demand. China's steel production accounts for over 50% of total production globally. In fact, China is also a major consumer of metals through construction and industry. A slowdown in construction activity in the country, along with a deteriorating business climate in the real estate sub-sector, especially in terms of confidence, is having a strong impact on global demand for Chinese metals such as copper.

 

"Environmental regulations are impacting customer sectors such as the automotive industry and are leading to a change in the model of the metals sector. Metals are also at the heart of energy transition projects (electric vehicles’ solar panels, wind turbines, etc.).Finally, metal goods, alongside wood-based ones for instance, are considered more sustainable by consumers and an alternative to plastics (furniture, equipment, packaging, etc.), which can lead to greater demand. It remains to be seen how the above-mentioned opposite trends will affect the sector and prices in the future," adds Simon Lacoume and Plamen Dimitrov.

Contact


Plamen Dimitrov

Country Manager
Tel.: 359 2 821 37 71
mail: plamen.dimitrov@coface.com 
 
 
Todor Tsevanov
Head of Marketing & Communications
+359 882 481 411
todor.tsvetanov@coface.com
 
 
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