Metals: A second wave of stockpiling in China is ahead – TDS


China's appetite for metals is insatiable. Evidence from aluminium markets suggests a second wave of stockpiling is occurring as the Middle Kingdom's industrial engine prepares for a recovering rest-of-world. Following a year that has dramatically disrupted supply, the ongoing stockpiling is having an outsized impact on price action in metals, Daniel Ghali, Commodity Strategist at TD Securities, informs.

Key quotes

“Strong aluminium prices in China help us construct a mosaic of information which reveals that a second wave of Chinese stockpiling may be afoot. China could be seeing a second wave of stockpiling ahead of an expected vaccine-related recovery in rest-of-world demand.” 

“Aluminium scrap production has significantly been displaced this year, which helped to ease the surplus of ingots. Investment flows have also been supporting LME metals as global markets increasingly price in a reflationary wave next year. This ties into market expectations for a weakening USD as the Biden administration is expected to see a return to traditional US foreign policy orthodoxy. This should decrease geopolitical uncertainty and ultimately translate to an appreciation in the yuan.” 

“A return decomposition in aluminium suggests that prices have rallied more than would otherwise be implied by the rise in broad commodity demand growth and a growing supply premium. In other words, idiosyncratic factors are contributing the premium in aluminium markets. While this premium has been correlated to speculative positioning, the evidence suggests that strengthening price momentum which cemented the rise in CTA positioning may have been driven by the stockpiling demand.”

 

Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers. The author will not be held responsible for information that is found at the end of links posted on this page.

If not otherwise explicitly mentioned in the body of the article, at the time of writing, the author has no position in any stock mentioned in this article and no business relationship with any company mentioned. The author has not received compensation for writing this article, other than from FXStreet.

FXStreet and the author do not provide personalized recommendations. The author makes no representations as to the accuracy, completeness, or suitability of this information. FXStreet and the author will not be liable for any errors, omissions or any losses, injuries or damages arising from this information and its display or use. Errors and omissions excepted.

The author and FXStreet are not registered investment advisors and nothing in this article is intended to be investment advice.

Feed news

Latest Forex News


Latest Forex News

Editors’ Picks

EUR/USD pressured amid downbeat data, covid concerns

EUR/USD is trading well below 1.18 and down on the day. Markit's US Services PMI missed estimates with 59.8, souring sentiment. Worries about covid provide some support to the safe-haven dollar. The ECB's dovish decision pressures the euro.

EUR/USD News

GBP/USD hovers around 1.3750 amid after mixed UK data

GBP/USD is holding above 1.3750, clinging to this level after UK Retail Sales beat estimates but Markit's PMIs missed on both sides of the pond. Covid headlines are eyed.

GBP/USD News

XAU/USD eyes a sustained move below key $1799 support

Gold price is trading on the wrong footing this Friday, eyeing the first weekly loss in five weeks, as the US dollar remains at the highest levels in three months.

Gold News

Cardano might pull back to $1.11 before heading higher

Cardano price pierced the July 18 swing high at $1.21, indicating a resurgence of buyers. Although ADA might try to slice through $1.25, a retracement will likely evolve before tagging $1.37.

Read more

US Markit PMIs Preview: Pre-weekend dollar boost? Downbeat figures could exacerbate risk-off mood

Two steps down, one step up – that has been the playbook for risk-averse markets. What happens when traders have little time to act ahead of the weekend and the last word belongs to a downbeat figure? 

Read more

Forex MAJORS

Cryptocurrencies

Signatures