Target ‘unloved’ metals, as China data weakens
As the economic outlook for China darkens, Liberum Capital's Ben Davis tells IGTV financial analyst @AngelineOng why investors should pay more attention to ‘unloved’ metals like iron ore and thermal coal, instead of copper.
(Partial Video Transcript)
Is Chinese downshift a blip or the future?
Hello, I'm Angeline Ong, and welcome to IG's Trading the Market. Here to discuss the outlook for the mining industry, especially after all those data points out of China, which painted quite a souring picture, is Ben Davis, European mining analyst at Librem Capital.
AO: Ben, thank you so much for joining us. First of all, what do you make of these recent numbers out of China? And is the weakness a blip or a complete gearshift by China, or does it herald a gearshift by China to slow down but in a managed way of its economy?
BD: Yes, it is certainly dramatic, the trade data, in particular. I think there's always a bit of a caveat that, in terms of some of it, was price, not volume impacts.
It was also the coming off a very high base in the middle of something, but it did meet expectations by a considerable amount, and it is clearly what beckons with the weaker European and US consumer just slowing down, that possibly that export growth machine is going to be threatened going forward.
So, yes, China, for what it has to do going forward, is going to be having to look more inwards, but that's not easy, either, certainly given how built out their normal, old traditional kind of economic engines of infrastructure and real estate already are.
And then looking to kind of move up the technology curve, it's not something that can happen quickly, and it's not necessarily that it can be done in the similar sort of size that already, you know, the old engines were.
So yeah, interesting times for China and how they're going to tackle this, as you say, the downshift is going to be, it's not going to be smooth.
Consumer demand slowing down
AO: That's interesting, Ben. Just looking at copper, which has come down quite rapidly, and it has also reacted to that news. I mean, to be fair, the Chinese authorities have always maintained that their growth plans are not dependent or designed with the health of the global economy in mind.
So, are we going to see then less demand for those metals and resources of which China normally is the biggest consumer in the next, say, 10 years?
BD: Certainly, good old Dr Copper, as you know, is usually a very good barometer signal to markets. There are obviously other things going on in respect to interest rates and how that might be influencing specs to positioning.
But for actual fundamental demand, absolutely, looking at the kind of the global trade data, it is going to be under threat at this point. I mean, it's not massive.
And actually, from a quantum perspective, the domestic demand figure of consumption of copper in China is going to be more important than what's happening in the export markets. But it's still, it is still absolutely slowing down… (cut)
AO: Thank you very much. That was Ben Davis, European mining analyst at Librem Capital. This is IG Trading the Markets.
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