Old Economy Weighs Down Base Metals in 2023

The global economy has experienced a rollercoaster ride in the first half of 2023, with the old economy pulling down the prices of base metals. As China’s manufacturing sector faces its third consecutive month of contraction, the consequences are evident in the market. This article delves into the challenges faced by China’s manufacturing sector and its impact on base metals, highlighting some mitigating factors like green demand channels and low visible inventories.

China’s Manufacturing Sector Struggles

In June 2023, China’s manufacturing sector experienced another setback, contracting for the third consecutive month. The official Purchasing Managers’ Index (PMI) recorded a disappointing 49.0, showing a slight improvement from May but still below the critical 50-point mark that separates expansion from contraction. Simultaneously, the Caixin PMI, which reflects the performance of smaller, export-oriented companies, declined to 50.5 from May levels. These figures indicate that China’s massive factory sector is grappling to maintain the early-year momentum it once displayed.

Base Metals Bear the Brunt

With China’s manufacturing sector stumbling, base metals are feeling the pressure. The London Metal Exchange (LME) index plummeted from a peak of 4,356 in January to 3,704, indicating a substantial decline. China’s dip in demand and production slowdown, as a major consumer, significantly contributed to the downward trend.

In conclusion, base metals, often considered the lightest metals and soft metals, are facing downward pressure due to the struggles in China. Therefore, it is crucial to stay vigilant about market dynamics. The outlook remains uncertain for now, but resilience and adaptability will be key to successfully navigating these economic challenges. As China’s manufacturing sector aims to regain momentum, it will likely significantly influence the base metals market. Moreover, external factors, such as the 1kg gold price and 1kg silver price, also shape the global economy’s landscape.