Commodities experts have raised concerns about the future of industrial metal prices, as global uncertainties about a new variant tussle with slowing demand as supply routes reopen.
Metal prices have been high, but…
Metal prices soared throughout the pandemic. With ports, mines, factories and distribution routes closed, and transportation of much-needed ores coming to a standstill, demand far outweighed supply.
However, the tide could be turning as restrictions lift and supply-chain pressures ease. Likewise, large-scale construction projects that were delayed due to local lockdowns and a lack of raw materials are getting back up to speed.
While good for economies, delays in construction projects are likely to put back the commissioning of new or next-stage projects, resulting in lower demand for metals.
China imports lag
Demand for industrial metal has been driven to an extent by China. However, total imports growth to the country eased from 51% in May 2021 to just under 37% in June. Of the total imports to China, industrial metals have been making up an ever-diminishing proportion, contributing to the overall drop.
In a recent bulletin, Andrew Hoyes, assistant economist at Capital Economics, wrote that there is support for the view “that China’s imports of most industrial commodities will decline further in the coming months, weighing on their prices by year-end”.
Sign of things to come
Imports of unwrought copper, copper ore and iron all fell for the third month in a row, and a spot check on commodities shows the price of certain metals at noon on Tuesday were also down. Copper stands at $9,366.50 per tonne, down almost 1% from the opening price of $9,477.50. Lead is similarly down by 1% to $2,307.00 per tonne.
Bjarne Schieldrop, chief commodities analyst at Nordic corporate bank SEB, believes the price high for base metals such as copper, nickel and iron ore has come and gone. He said: “Copper has been a great reflation-trade on the back of vaccinations and re-openings. With the global manufacturing PMI [a leading indicator for assessing the state of the US economy, formerly known as the Purchasing Managers’ Index] stagnating in June and Chinese total financing seeing a year-on-year contraction of 38% in Q2 2021, we think it’s likely we’ve seen the high of the year for the copper price.”
“The bull-rally in iron ore prices goes on and on, hitting $217 per tonne and the highest in at least 10 years. Prices are unlikely to stay at current levels with futures contracts averaging $150 per tonne for 2022 and $110 per tonne in 2023, and for the rest of the year we expect $185 per ton.”
Andrew Smart, global leader, mining and metals at Deloitte, added: “Demand for many commodities like copper, iron ore and zinc remains low as markets anticipate a lower near-term demand outlook for these commodities.”
Word of warning
The World Bank also expects metal prices to drop, as stimulus-driven growth fades in 2022. The organisation stated: “A faster-than expected withdrawal of stimulus by some major emerging market economies could pose a downside risk to prices.”
John Baffes, senior economist at the World Bank, noted: “Metal price shocks are primarily driven by external demand factors, such as global recessions and recoveries. During a recession, metal exporters may be hurt by both the broader downturn as well as a collapse in prices.
“Output losses associated with price drops are greater than the gains from price increases, and policymakers should prepare accordingly.”