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China's modest growth outlook weighs on commodities - analysts

Kitco News

(Kitco News) Commodities are under pressure after China set a modest economic growth outlook of 5% for 2023. And there were no major stimulus announcements.

China set a GDP growth target of around 5% for this year, which underwhelmed market expectations.

In response, the commodity complex took a step back, sending copper, iron ore, aluminum, platinum, and other precious metals prices lower.

"Industrial metals edged lower in the morning trading session today (after ending higher on Friday) after the annual National People's Congress meeting in China did not announce any major new stimulus plans," said ING's commodity strategists Warren Patterson and Ewa Manthey.

The latest from China points to "the government only aim[ing] to support and stabilize the economy, instead of issuing massive stimulus," ING said, quoting China's announcement.

According to analysts, this focus on economic stability versus rapid economic growth weighs on the metals.

"Metals exposed to China's growth engine have fallen overnight, with copper and iron ore both weakening," said SP Angel analysts John Meyer. "Copper prices sold off to $8,867/t whilst iron ore prices weakened over 1%."

Markets were looking forward to additional government support for the slowing construction and industrial sectors, which would increase demand for industrial metals, ING's strategists noted Monday.

"We believe that this year's infrastructure investment will lean towards technology and ESG. As such, we might see more focused transportation infrastructure projects. Only those that have been planned or started will be implemented," the strategists said.

BMO Capital Markets said it sees China's metals sector sentiment and prices as "running ahead of underlying demand at present" and believes that Q2 will be a critical period to see if data can "catch up to underpin price levels."

While some countries would be happy with 5% growth, this is "a softball target for the incoming PM (likely to be Li Qiang, to be confirmed March 13 when the NPC closes)," said BMO Capital Markets commodity analyst Colin Hamilton.

"Energy efficiency is back on the agenda. Having been suspended in 2022 following the energy crisis, the target to reduce energy intensity per unit of GDP is back. This may lead to a renewed clampdown on energy-intensive output such as steel, aluminum, and ferroalloys and lower exports of these materials," said Hamilton.

TD Securities confirmed that there is insufficient evidence for the expected metals demand boom from China's reopening.

"Instead, we find that overstocking may continue to constrain physical appetite for industrial metals going forward," said TD Securities senior commodity strategist Daniel Ghali. "Throughout the complex, prices are struggling to hold onto their uptrends, catalyzing selling activity from CTA trend followers across several LME metals."

At the time of writing, May silver was at $21.13, down 0.51% on the day. March aluminum was flat at $2,369. March palladium was down 1.66% on the day at $1,407. And May copper was $4.08 per pound, up 0.36% on the day.

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