China's economic growth pulls copper prices up
Optimism about China’s economy drove copper prices higher at the end of October. In the third quarter, the country’s economy grew faster than expected after economic downturn in the second quarter, giving signs the economy was stabilizing.
Why it matters: When China’s economy is performing well, copper prices tend to rise, as China is the world’s top consumer of refined copper. A copper increase of roughly 5.5% went into effect on November 1, which we are seeing support for, even at smaller, more regional copper wire suppliers.
There’s a catch: Despite the upward momentum, China’s economy faced a setback as factory activity contracted in October, according to the official purchasing managers’ index.
In other copper news: The approval of a long-term contract that will allow a Canadian mining company to continue operations at a copper mine in Panama has been met with protests.
- On October 20, the Panamanian government approved a contract allowing First Quantum Minerals to continue operations at the Cobre Panama copper mine for the next 20 years.
- Protests demanding the contract’s cancellation prompted the country’s president to announce a referendum to decide the fate of the contract in December.
Big picture: The year-to-date copper average is now $3.87. In 2022, the annual average was $4.01. A strong demand for copper is forecasted to continue as countries, including the United States, roll out massive infrastructure projects.
U.S.-EU aluminum, steel negotiations continue
The U.S. will extend a suspension of tariffs on European Union (EU) aluminum and steel if the two parties cannot reach an agreement by the time the suspension expires in January 2024.
- Starting in January 2022, the U.S. suspended import tariffs of 25% on EU steel and 10% on EU aluminum, which were put in place by former President Donald Trump in 2018.
- Those tariffs were replaced by a tariff rate quote system that allows steel and aluminum into the U.S. tariff-free up to a point.
- Now, the U.S. and EU hope to make a deal on measures to address excess metal production capacity in non-market economies, like China, and low-carbon production.
Why it matters: An agreement between the U.S. and EU would allow tariff-free trade of aluminum and steel between the two entities to continue and discourage trade of high-carbon steel and aluminum.
Union reaches tentative deals with automakers
The United Auto Workers reached a tentative deal with General Motors on October 30, days after the union struck deals with Ford Motor and Stellantis. The deal marks the end of a six-week strike against the Detroit Three automakers.
Why it matters: The series of strategically targeted walkouts at various automaker plants reduced the demand for steel. Steel vendors raised prices around 10% in response to the end of the strike.
Big picture: The World Steel Association’s Short Range Outlook for 2023 and 2024 forecasts steel demand will grow by 1.8% in 2023 and a further 1.9% in 2024.
Oil prices depend on war in Middle East
The World Bank predicts oil prices will average $90 per barrel in the fourth quarter of this year, but the future of the Israel-Hamas war could decide which direction prices trend beyond that point.
- It predicts oil prices will drop to an average of $81 per barrel over the next year if the Israel-Hamas war does not escalate into a wider, regional conflict.
- If the war does escalate and disrupts oil supplies, it predicts prices could rise as much as 75% to $157 per barrel, as a worst-case scenario.
For now, crude oil prices have fallen to around $80 per barrel as traders assess demand prospects, weighing the war and other factors, including:
- Monetary policy decisions from the Federal Reserve, Bank of Japan and Bank of England.
- Economic data from China and the United States.
Why it matters: Oil serves as an indicator for PVC but does not tell the whole story. On October 30, PVC pipe saw a 10% price increase to cover increased labor and freight costs, not raw material costs.
Overall, the market continues to decline as demand has softened, while production remains strong.
News roundup
The Federal Reserve held interest rates at 5.25% to 5.5% for the second meeting in a row when it met on November 1.
We continue to watch the development of the Israel-Hamas war. Long-term elevated oil prices would greatly impact commodity markets.