Since March, precious metals have started a strong upward trend, and in May, precious metal prices have reached a new high in nearly a decade! Last Friday, silver prices fell significantly. According to the Commodity Market Analysis System of the Business Society, the daily average price of silver spot market fell by 5.11% on the 12th, and the daily average price of gold spot market fell by 0.45%. Will a significant drop in silver prices drive the entire precious metal sector to turn?

 

Firstly, let’s review the main logic of this round of market and the dominant market:

 

Gold prices hit a new 10-year high

 

After hitting a new 10-year high, gold prices fluctuated slightly downwards. According to the commodity market analysis system of the business community, the spot market price of gold will be 451.23 yuan/g on May 12, 2023, 1.47% higher than the average price of the spot market before the festival, and 8.96% higher than the beginning of March (March 1).

 

Overall, the price of precious metal gold is currently at an absolute high during the same period in history. On the contrary, silver is not only currently at its highest level in the past decade, but also has experienced a relatively high price increase in the past year.

 

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The price of silver has increased by 32.79% compared to its low level in the past year

 

According to the commodity market analysis system of the business community, the average price of silver in the market will be 5441.67 yuan/kg on May 12, 2023, down 2.54% from the beginning of the month, but still 11.88% from the beginning of March (March 1), up 1.81% from the early average price of 5345 yuan/kg in the spot market at the beginning of the year (January 1). The low point in the past year appeared on July 18, 2022, and the current price has increased by 32.79% compared to the low point.

 

Comparison of precious metal gold and silver price trends in the past year

 

In 2022, the rise and fall trends of precious metal gold and silver have converged, but the decline in silver was deeper from April to August, and the recent recovery has been more significant. In December, silver continued its strong trend last month, and gold began to consolidate at high levels. In 2023, precious metal gold and silver have consolidated at high levels, with a slight decline in February. Since March, precious metal prices have started to rise. Due to the significant upward trend of silver, the recent increase in precious metals has returned to a similar level.

 

The main driving logic for the upward trend of precious metals since March:

 

1. Macro factors

 

There are expectations of easing monetary policy tightening: the Federal Reserve has raised interest rates to historic highs, narrowing the space for further rate hikes; The May rate hike data shows that the federal interest rate target range has been raised by 25 basis points to the level of 5% -5.25%. This is the tenth consecutive rate hike by the Federal Reserve since March 2022 and the third consecutive rate hike at the slowest pace since March last year. The current federal interest rate has reached its highest level since 2007.

 

The risk of economic recession in Europe and the United States has increased. Continued economic concerns and the US debt ceiling impasse, combined with the US banking crisis, have led to a high risk aversion in the market.

 

2. Strengthening of monetary attributes:

 

Due to geopolitical factors, the United States has abused its dominant role in the US dollar and international trade payment system, leading to strong demand for gold from global central banks and strengthening the monetary attributes of precious metals. According to data from the World Gold Council, global central banks’ gold purchases reached a record high of 1136 tons in 2022, and this trend continues in 2023. In the first quarter of 2023, global central banks maintained net purchases of gold, with central banks and other institutions purchasing 228 tons of gold in the first quarter, a year-on-year increase of 176%. Among them, the Singapore Monetary Authority purchased 51.8 tons of gold in the first two months of this year; The People’s Bank of China has increased its holdings of gold for six consecutive months. Since the People’s Bank of China started this round of additional purchases of gold last November, the gold reserve of the People’s Bank of China has increased from 62.64 million ounces to 66.76 million ounces at the end of April this year, with a cumulative increase of 4.12 million ounces, including 57.85 tons of gold in the first quarter.

 

3. Domestic physical consumption is expected to rebound

 

According to the latest statistics from the China Gold Association, the national gold consumption in the first quarter of 2023 was 291.58 tons, an increase of 12.03% compared to the same period in 2022.

 

Among them: 189.61 tons of gold jewelry, a year-on-year increase of 12.29%; 83.87 tons of gold bars and coins, a year-on-year increase of 20.47%; Industrial and other gold consumption reached 18.10 tons, a year-on-year decrease of 16.90%.

 

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Market driven logical variables:

 

The Federal Reserve raised interest rates by 25BP in May, and overall, it is still in the interest rate hike cycle in the short term. Before the expected rate hike is falsified, the upward space for precious metals has always been constrained. Early market expectations for the Federal Reserve’s interest rate cut have cooled. Although the employment data will not lead to the Federal Reserve raising interest rates in June, it is enough to calm those who are eager for the Fed to cut rates soon. The longer US interest rates remain high, the more pressure they put on non interest bearing gold.

 

Recently, the US CPI and PPI have fallen beyond expectations, and the number of first-time applicants for unemployment benefits has unexpectedly increased. After the Silicon Valley banking incident, although the market’s expectation of the Federal Reserve suspending or even lowering interest rates to alleviate the banking crisis has increased, causing the US dollar index to weaken in the past period of time, the government’s borrowing behavior after the debt ceiling crisis has once again put pressure on US dollar liquidity. The short-term rebound in the US dollar index has put some pressure on precious metal prices.

 

Will the significant decline in silver prices drive the entire precious metal sector to turn around?

 

At present, the price of silver is at its highest level in nearly a decade, but there is still a gap compared to the high light period of silver in 2011. After the high price of silver, the price plummeted significantly on the 12th, mainly due to the stronger nature of silver commodities, market concerns about economic recession, and expectations of relatively weak physical demand, which strengthened the demand for high profits to be eliminated. After the release of emotions, it is expected that the monetary attribute of precious metal silver will return to its dominant position. It is expected that precious metal prices may experience weak upward trend in the short term, with high volatility and consolidation being the main trend, and the medium to long term remains bullish.

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According to the Commodity Market Analysis System of the Business Society, the prices of polyformaldehyde in Shandong have been fluctuating and declining recently. At the beginning of the week, the average production price of polyformaldehyde in Shandong was 5062.50 yuan/ton, and on the weekend, the average production price of polyformaldehyde in Shandong was 5037.50 yuan/ton, a decrease of 0.49%, a month on month decrease of 3.82%, and a year-on-year decrease of 8.41%.

 

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Upstream methanol situation: The domestic methanol market is fluctuating and declining, with Jining’s methanol factory price reference being around 2300 yuan/ton for cash withdrawal, and Linyi’s delivery price reference being around 2350 yuan/ton for cash withdrawal. The local methanol factory in central Shandong quoted a price of 2400 yuan/ton for cash remittance, while the reference price for the methanol market in Dongying, Shandong is 2320-2330 yuan/ton for cash remittance.

 

Recently, the methanol market has been weak and declining, with poor cost support. The market for polyformaldehyde has also fallen, and polyformaldehyde analysts at the Business Society predict that prices may decline slightly.

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1、 Price trend

 

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According to the monitoring of the Commodity Market Analysis System of the Business Society, the SG5 PVC carbide method fell this week. On Monday, the average price of domestic PVC was 5925 yuan/ton, and on Friday, the average price was 5868.33 yuan/ton. The price fell by 0.96% during the week.

 

2、 Market analysis

 

The price of PVC in the domestic spot market fell this week. The overall trading atmosphere in the spot market this week was average. Inquiries in the spot market are acceptable, and transactions can be made at multiple prices. Overall, demand is light, and actual transactions are cautious, with more wait-and-see. As of now, the quotation range for PVC5 carbide materials in China is mostly around 5650-6280 yuan/ton.

 

In terms of crude oil, on May 5th, international crude oil futures rebounded significantly. The settlement price of the main contract for WTI crude oil futures in the United States was $71.34 per barrel, an increase of $2.78 or 4.1%. The settlement price of the Brent crude oil futures main contract was $75.30 per barrel, an increase of $2.80 or 3.9%. The main reason is that the positive US employment data has eased market concerns about the economy falling into recession, and investors also generally believe that the Federal Reserve will suspend interest rate hikes in June. The oil market has received a boost.

 

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In terms of calcium carbide, according to data monitored by Business Society, the price of calcium carbide has stabilized at a low level this week, with an average price of 2983.33 yuan/ton. Upstream blue charcoal prices have stabilized at a low level, with insufficient cost support. The downstream PVC market has slightly declined, and demand for calcium carbide has weakened.

 

3、 Future Market Forecast

 

PVC analysts from Business Society believe that PVC spot prices have fallen this week. Upstream calcium carbide prices have stabilized at a low level, with average cost support. Downstream demand is light, procurement enthusiasm is average, more inquiries and wait-and-see, and actual transactions are cautious. It is expected that the PVC market will experience slight fluctuations in the short term, and we will closely monitor changes in the news.

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According to the commodity market analysis system of the business community, the domestic PTA market in April showed a “M” trend, showing a general decline. As of April 29, the spot market price in East China was 6180 yuan/ton, down 3.51% from the beginning of the month.

 

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At the end of April, the domestic PTA device load remained around 80%, and in May, restart and maintenance coexisted. In terms of inventory, according to statistics, the current PTA social inventory is maintained at around 2.7 million tons. In April, there was an increase in PTA supply and a decrease in demand, resulting in a slight accumulation of inventory in the market.

 

In the crude oil market, the Organization of the Petroleum Exporting Countries and its allies (OPEC+) suddenly announced a significant reduction in production at the beginning of this month, which is estimated to exceed 1 million barrels per day. Affected by this news, international crude oil futures prices have strengthened. But with concerns about economic recession and market expectations of further interest rate hikes that may suppress fuel demand growth, prices have fluctuated and fallen. As of April 28th, WTI’s June crude oil futures were trading at $76.78 per barrel; Brent crude oil futures for June were trading at $79.54 per barrel.

 

In April, the PX new device had a load of 90% of Shenghong’s 4 million tons, a load of more than 80% of Guangzhou Petrochemical’s 2.6 million tons, and a load of less than 30% of Daxie Petrochemical’s 1.6 million tons. PX centralized maintenance has begun to materialize, and the operating rate of PX in Asia has rapidly decreased. However, at the end of the month, with the restart or load increase of multiple PX devices, the tight supply of PX in the early stage was slightly alleviated, and the domestic PX device load remained above 70%. The Asian centralized maintenance season is coming to an end, and the cost support for the PTA market from the PX maintenance season is also coming to an end.

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Under the background of losses in downstream polyester factories, production began to decrease, and the load continued to be reduced to around 85%. There was a decrease in PTA procurement, and a negative feedback pattern of demand was initiated, with replenishment on demand being the main focus. At the end of the month, the polyester factory sold out at a profit margin, but the profit performance of various varieties remained sluggish, and inventory continued to accumulate. The decline in the production of weaving machines in Jiangsu and Zhejiang provinces is more pronounced, continuing to drop below 55%. The domestic market has moderately weakened, and foreign trade orders have not shown signs of improvement. Currently, the overall issuance of new foreign trade orders is still relatively slow.

 

Analysts from Business Society believe that the support on the cost side has weakened, and PTA itself is under increasing pressure on the supply side as new devices are put into operation. At the same time, after the May Day holiday, the terminal textile off-season will gradually enter, and the demand side will also become weaker. It is expected that the PTA market will still be weak in May.

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