BNY’s EMEA Macro Strategist Geoff Yu highlights that industrial metals have failed to reclaim early-year highs and sees little macro support for a rebound. Weak import prices in the US, China and Germany, ongoing Chinese PPI deflation and Indonesia’s nickel quota cuts all point to persistent demand drag, keeping downside pressure on metals and related emerging-market currencies in the near term.

Demand drag weighs on metals outlook

"Metals markets have struggled to recover their early-year highs, and we don’t expect macro data to support a rebound in the near future. Underlying demand for industrial metals has long dragged on prices and futures curves, and there is very little sign that improvement is imminent."

"In absolute terms, import prices in the U.S., China and Germany are all lower on an annualized basis, with broader Chinese producer price figures (PPI) expected to remain negative for the remainder of the year."

"The recent decision by Indonesia to cut nickel ore quotas at its largest mine underscores the downside risks to base metals and the lengths to which exposed governments are willing to go to preserve favorable terms of trade. Such headwinds are likely to affect commodity markets in the near term."

"Meanwhile, we fully expect ongoing downside risk to flow and holdings in metals-exposed currencies. This means that the need to maintain tighter financial conditions remains imperative across much of EM."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)