Industrial metals have done rather well in bouncing back from the coronavirus pandemic lockdowns.
Classic fundamentals have been supported by rising sentiment to boost prices across the board. Mine supply has been constrained by governments forcing companies to close mine sites and refineries in a bid to contain the spread of the virus resulting in a hit to raw material and refined metal output in a number of countries.
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According to Capital Economics, nickel, tin and zinc have been hit the most, each down 8% to 11% for the first three quarters of 2020 over 2019.
On the other side of the fundamentals, equation demand in top consumer China came roaring back during Q2 and Q3, fueled by infrastructure spending that is seeing positive PMI numbers across all sectors — consumption, retail, construction, manufacturing and exports.
GDP in China has recovered to finish the year above last, and there seems little sign that demand is likely to tail off anytime soon. While the rest of the world’s demand has been initially badly hit by lockdowns, it was maintained for electronics and PPE equipment, both dominated by Chinese manufacturers, which have more than made up for losses in more conventional areas.
Prospects for industrial metals next year
Will this buoyant backdrop persevere into 2021, consumers are asking themselves, should I be factoring in continually rising prices through next year?
It would be a brave observer to bet against the Chinese economy but there are a number of factors to suggest the current drivers will ease into the spring of next year and that base metal prices could finish somewhat lower by the end of 2021, Capital Economics believes.
The first is this infrastructure-fueled surge in demand will ease, the fiscal stimulus has done its job and while projects are still to be completed Beijing will not want to saddle corporates or states with debts unnecessarily nor fuel inflationary pressures if the boost to GDP and employment is not required. Additionally, export markets’ spending habits will evolve as COVID-19 vaccines are rolled out, moving back to travel, leisure and services from electronics.
Secondly, vaccines will allow mine production to recover, although developing countries may be slower to receive and roll out vaccines and vaccination programs by the second half of 2021 mine production will have recovered.
Copper, platinum and palladium
Some of the investor interest in copper, platinum and palladium is longer-term and based on speculation that the migration to a greener future, to less polluting technologies such as electric vehicles, hydrogen fuel and renewable technologies will boost demand for copper, nickel, silver and PGM’s, such as platinum and palladium.
The strength in the run-up of prices was in part supported by the constrained supply picture, so while the enthusiasm for these metals is unlikely to dissipate anytime soon, the froth is likely to subside and a sense of realism over the timeframe into the middle of the decade may well see some of these long positions wound down, further withdrawing a price support element next year.
The MetalMiner 2021 Annual Outlook consolidates our 12-month view and provides buying organizations with a complete understanding of the fundamental factors driving prices and a detailed forecast that can be used when sourcing metals for 2021 — including expected average prices, support and resistance levels.