China’s slowdown hurts now, but silver could see a 40% spike by year-end

San Francisco (May 11)  Prices for silver, copper, platinum and palladium all fell on Monday as efforts by China’s central bank failed to ease traders’ concerns over the country’s economic slowdown.

The macroeconomic research company forecasts higher prices for certain metals by year-end, including a potential 40% spike in silver prices.

The People’s Bank of China on Sunday stepped up monetary-easing measures in the face of a worse-than-expected economic slowdown, shaving a quarter of a percentage point off benchmark lending and deposit rates — it is third rate cut in six months.

China’s interest-rate cut comes amid new signs the economy is failing to find a bottom despite efforts to loosen monetary policy, MarketWatch columnist Craig Stephen wrote in This Week in China.

But Capital Economics remains positive on the economic outlook for China and the U.S. — the two biggest consumers of most commodities. It also pointed out in a chart that China’s imports of gold, silver, platinum and palladium are growing.

Simona Gambarini, commodities economist at Capital Economics, expects to see an “upturn” in silver fabrication demand in the second half of this year. Read: Chinese demand for silver bars halved last year.

Silver futures prices have already gained more than 4% year to date and Capital Economics forecasts a year-end 2015 price of $23 an ounce for silver.

That would be a roughly 40% jump from the current prices on Comex. July silver SIN5, -1.06%  settled at $16.314 an ounce, down 15.1 cents, or 0.9%, on Monday.

Meanwhile, platinum and palladium took an additional hit Monday from news that China’s passenger-car market in April saw its weakest gain in more than a year. The country, known as the world’s largest car buyer, sold 1.67 million passenger vehicles last month, up 3.7% from a year earlier.

Platinum and palladium are used in vehicle emissions control devices known as catalytic converters. On Comex Monday, July platinum PLN5, -1.52%   declined $16.20, or 1.4%, to $1,127.30 an ounce and June palladium PAM5, -2.62%  shed $21.90, or 2.7%, to $780.45 an ounce.

“China’s imports of platinum had been slowing since Sept. 2014, but March data show a partial recovery,” said Gambarini.

Capital Economics forecasts a 2015 year-end price of $1,400 an ounce for platinum and $900 an ounce for palladium — about 23% higher than the current platinum price and roughly 12% higher than palladium’s current price.

China’s efforts to boost its economy hasn’t gone unnoticed either.

In a separate note Monday, Caroline Bain, senior commodities economist at Capital Economics, said that signs point to Chinese authorities being committed to using “the powerful tools at their disposal to prevent a ‘hard landing’.”

That will “result in stronger demand for industrial raw materials, including copper, later in the year,” she said. Capital Economics sees a year-end copper price of $7,200 per metric ton. There are 2,204.6 pounds in one metric ton so that is roughly equivalent to about $3.266 a pound, around 13% above current prices.

July copper HGN5, -0.36%  settled Monday at $2.903 a pound, down 1.75 cents, or 0.6%, on Comex.

Source: MarketWatch