Macquarie Bank says demand for industrial metals is enjoying a broad-based recovery

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The global manufacturing sector enjoyed its strongest month in years at the end of 2016 with the Markit-JP Morgan purchasing managers index (PMI) — a gauge of changes in activity levels from one month to the next — rising to 52.7, the highest level seen since February 2014.

To analysts at Macquarie Bank’s commodity research team, the rebound adds to the view that metals demand is enjoying a broad-based recovery, contrasting to patterns seen in recent years where strength in one region was offset by weakness in others.

“A resurgent US was the key driver but, importantly, this was despite a multi-year high in the dollar, and so unlike on many occasions since the GFC has not been at the expense of manufacturing in other key regions such as Europe,” analysts at the bank wrote earlier this week.

Macquarie says that this convergence between major manufacturing nations should help to underpin metals demand in the first quarter of this year.

“Industrial production/manufacturing is a key sector for metals demand, and the PMIs are a timely indicator of the health of this sector,” it said, pointing to the chart below showing the relationship between the global manufacturing PMI report and global industrial production and manufacturing output.

While Macquarie says that the PMI does not always lead official industrial production data, suggesting that “it is not an exact science”, it says that on past relationships, it points to a further acceleration in year-on-year growth towards 3.0% from its current level of around 2%.

With raw materials required to fuel that increase — should it eventuate — it’s clear why Macquarie, and others, see demand remaining solid in the months ahead.

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