The RBA’s commodity price index was published last week, and even though coal prices were well up it’s likely iron ore spot prices were also up marginally as measured by the monthly rate of change for coal and iron ore.

But what’s more interesting is that after a massive run up in calendar quarter 1, base metal prices (which include key decarbonisation metals like Copper, Nickel and Aluminium) decreased in April and May at their fastest monthly rate of change, since April 2020.

That means a monthly rate of decline similar to what we experienced during the first wave of COVID-19 lockdowns.

And given China’s recent lockdown of four major cities and two major ports, it makes perfect sense, but there’s one big difference.

Last time, you couldn’t give oil away (see the COVID lockdown trough charted below), but now crude oil prices are mooning due to supply side blockages, and as an intermediate product it is a major contributor to inflation.

So for base metals, can recent price declines mostly be explained by two months of lockdown and three months of contraction in China’s economy (as measure by PMI below) - and are we likely to see price increases resume?

Or, can the recent rate of decline be mostly explained by higher commodity prices starting to cure high commodity prices?

The answer, while murky, should unfold as China finds it post-lockdown manufacturing ‘new normal’ under a continuing COVID-zero policy.

If there is no change to President Xi’s policy, and if China continues with rolling lockdowns, perhaps copper, base and bulk metal prices moderate until (and if) the U.S. starts to rebuild its industrial and energy infrastructure base, in earnest.

Mike