Metals prices pull back from recent highs

Rising metals output

Reuters reported that China’s aluminum production in April rose to a record monthly volume. China’s primary production reached 3.35 million metric tons in April. That marked a 2.3% jump from 3.28 million tons in March. Furthermore, it jumped by 12.4% from April 2020.
Nor was April an anomaly.
In the first four months of the year, China produced 13.02 million tons, a rise of 9.6% from the same period a year earlier. High prices and strong demand encouraged smelters to ramp up output. In addition, power restrictions in Inner Mongolia were eased.
The SHFE price hit 20,000 RMB ($3,106) per ton, the highest since 2011. In addition, production of 10 nonferrous metals — including copper, aluminum, lead, zinc and nickel – rose 11.6% to 5.48 million tons from a year earlier. Year-to-date output of the 10 metals rose by 11.5% to 21.43 million tons.
High prices have boosted output. While strong demand has also been a factor, investors have gone long and bid up prices.

Beijing aims to restore ‘normal market orders’

That trend has come seemingly to Beijing’s increasing irritation. The government’s warnings over the weekend have resulted in a sharp correction in price direction.
The National Development and Reform Commission (NDRC), urging commodity firms to maintain “normal market orders,” the BBC reported.
In a meeting on Sunday — to which the firms were said to be “collectively summoned” for interviews, according to the BBC’s report — and basically read the riot act to observe “normal market orders.”
The message was duly noted.
Prices have pulled back sharply. The LME three-month copper price dropped by 1.6% to $9,881 per metric ton. Meanwhile, aluminum fell by 1.09% to $2,370 per metric ton.

Biden stimulus plan

Market anxiety that President Joe Biden’s stimulus plan — or, at least, the metals-consuming infrastructure element of the plan — is being scaled back after facing opposition from Republicans has also added to negativity.
The spending plan is apparently being scaled back from $2.25 trillion to $1.7 trillion. Most of the cuts will include the most important parts for metals consumption, like broadband, roads and bridges.
Whether infrastructure spending anxiety and Beijing’s clampdown on speculative activity will result in a longer-term fall in prices remains to be seen.
At least some of this year’s rises in prices has been due to recovering optimism. Much of the good news has probably been assimilated into prices already, so a pullback is probably due.
We will have to wait and see whether this proves to be the peak. However, we have been calling for some time that we are not in the grip of a new supercycle.
The readiness of the market to retrench over the last week probably reinforces the view that we have a bounce-back recovery, not a new supercycle.
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