Investing.com -- Base Metals Rally Pauses as China and US Economic Conditions Weigh on Market, Says BofA Securities Analysts
The recent slowdown in base metals rally is linked to various factors, including sluggish growth in China and a weakening US economy, according to experts at BofA Securities. Despite expectations of Fed rate cuts, monetary stimulus alone may not be enough to boost the base metals complex, as historical data shows that rate cuts need to be accompanied by a resurgence in manufacturing activity.
Key Factors Affecting Base Metals:
1. Economic conditions in China and the US: China's struggles to stimulate growth and the weakening US economy are posing challenges for the base metals market.
2. Monetary stimulus and manufacturing activity: While monetary easing usually supports base metals, the current sluggish manufacturing sector may hinder the impact of anticipated Fed rate cuts.
Nickel Market Dynamics:
1. Supply and demand fundamentals: Global nickel supply has stagnated while demand has increased, resulting in a market deficit. Indonesia's production cuts have contributed to this shortfall, but a re-acceleration of output is expected in the future.
2. China’s nickel market: China's investments in Indonesia have altered the domestic nickel market, leading to bearish pressures on nickel prices outside China.
Future Outlook and Challenges:
1. Global nickel supply: Indonesia's strategic changes in its nickel industry may stabilize the market in the long term, but could introduce complexities and delays in supply chain adjustments.
2. Price forecasts: BofA predicts average nickel prices of $17,707 per tonne for 2024 and $17,625 per tonne for 2025, reflecting a cautious outlook.
In conclusion, the base metals market is facing challenges due to economic conditions in China and the US, as well as uncertainties in global nickel supply and demand dynamics. Investors should monitor these factors closely to make informed decisions about their portfolios.