As global stocks rallied, metals saw gains with them this week. The bounce that precious metals got from Brexit has largely been sustained and lead and other base metals have come with them despite neutral fundamentals.
Yet skulking under this prosperity lies a specter that threatens to erode prices and even affect the positive performance of those stock markets: Chinese overproduction.
The European Union. went so far as to tell China to stop subsidizing unwanted steel if it wants to achieve market economy status in the World Trade Organization, only to have bilateral talks collapse. The export quotas that China maintains have also led manufacturers to substitute out rare earths metals, now the E.U. and U.S. are asking the WTO to eliminate more Chinese export quotas. The U.S. and the E.U. teamed up against Chinese export quotas on base metals.
So, even as metal prices look like they are rising, oversupply lies in wait.