When discussion of metals markets — indeed, any markets — considers likely price trends, it nearly always starts off looking in the rear-view mirror.
Last year’s copper market suggests a bull market driven by vociferous Chinese demand. Imports surged after China relaxed its spring lockdown. Prices rose strongly, up some 48% on the LME from March lows, led by speculative interest (particularly on the SHFE).
Bulls would have you believe we have much further to go.
But 2021 is not 2020.
The combination of stimulus and demand catchup will not be the feature in 2021 that it was in 2020. That will be true in China and the wider global economy.
Metals prices in 2021: what’s next?
Reuters recently reported the consensus price for copper this year is US $7,600 per metric ton, up 23% from last year’s consensus. However, it’s some $200 per metric ton below the current price.
However, on the other hand, 2021 is not likely to show the volatility we saw last year. Major black swans like a killer new mutant strain emerging excepted, expectations are prices will trade in a relatively narrow band this year compared to last.
Furthermore, 2022 is likewise expected to be much more stable. Still some years away from major electrification demand outpacing copper supply, 2022 is forecast to see a median price of US $7,625 per metric ton.
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Price movements elsewhere
Accepting that the one thing you can be sure of with forecasts is they will be wrong, the underlying rationale has some merit because it applies to pretty much the whole base metals complex. Recent price movements suggest it applies to steel, as well.
Supply is recovering fast. While exchange stocks do not necessarily reflect this across all metals — some, like aluminum and zinc, have far larger off-market stocks — a realization that they are there will temper expectations of higher prices.
As economies recover from 2020 and the impact of ongoing lockdowns, Chinese demand (equivalent to roughly half the world’s output of many metals) will likely ease as the tailwinds of the stimulus measures wane and the economy pivots more toward consumption. China cannot afford to allow continued rising debt levels or stoke its hot property market. Regarding the latter, the authorities have already signaled their intent to damp down demand.
Local distortions may still support local markets – to the extent President Joe Biden’s “Buy American” plan may support local producers of steel and, in particular, should be beneficial for North American USMCA steel mills – but such price premiums will be relative to the rest of the world. In short, they won’t be sufficient to send the market in the opposite direction.
Reuters reported all the base metals, with the exception of tin, will likely be in surplus this year and next.
If there is one silver lining for metals consumers to look forward to in 2021, apart from an effective jab, it is that prices may be more stable. Furthermore, they will likely be more predictable and, for some, a little lower than they have been of late.
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