Global industrial comeback pushes metals to record highs for several years, Energy News, ET EnergyWorld
Industrial metals, from copper to aluminum to iron ore, have reached their highest level in years.
The reasons for their gains are many: Copper – essential for everything from electrical wiring to motors and therefore an indicator of the global economy – has moved out of its recent range to trade near the highest since the last supercycle as the industrial operations are mushrooming around the world. . Iron ore, aluminum and steel, meanwhile, are gaining speculation that production cuts will reduce supply just as demand soars. And a weaker dollar makes commodities traded in the currency cheaper to buy.
But at the root of the rally, there is a simple fact: Some of the world’s major economies such as the United States and China are recovering from the pandemic, fueling demand for cars, electronics and infrastructure. US President Joe Biden’s $ 2.25 trillion infrastructure package and bets that more aggressive climate promises will accelerate the proliferation of solar panels, wind turbines and electric cars lead to more gains and raise fears of a shortage of metals . This week’s US climate summit only intensified those concerns.
“Biden’s new climate promises and at least China’s lip service to greener domestic policies are keeping demand looking good,” said Tai Wong, head of derivatives trading. on metals at BMO Capital Markets. The decline in inventory this week also continued to buttress supply concerns, he said.
As a result, virtually all metals critical to industrial operations gained this week. Copper rose 1.6% to end the week at $ 9,551.50 per metric tonne in London, the highest closing price since August 2011. Iron ore rose in Singapore. Chinese steel futures reached new highs as investors weighed the country’s pledge to cut production against strong demand. Shanghai rebar is at its highest level since futures began trading in 2009.
Jiangxi Copper Co., China’s largest smelter, expects prices to hit $ 10,000 as plans to cut carbon emissions boost demand for the metal essential to the green energy transition. Meanwhile, orders for copper stored in warehouses monitored by the London Metal Exchange have resumed, with 83,150 tonnes of metal now destined for withdrawal, the highest level since July.
âThe outlook for copper has never been better,â said Richard Adkerson, president and CEO of Freeport-McMoRan Inc., the world’s largest publicly traded producer. This view is supported by scarcity of inventory, high demand and a dearth of big new projects waiting behind the scenes.
As banks, including Goldman Sachs Group Inc., expect further gains in metals, including copper, concerns simmer that could further disrupt the rally. Copper cooled in March and early April amid concerns of a global resurgence of the coronavirus, and new variants of the virus still pose a threat to plans to reopen economies. The possibility of a reduction in stimulus measures in China could also slow the world’s second-largest economy and torpedo demand for metals.
For now, the signs are that the economies are on the mend. Unemployment insurance claims in the United States unexpectedly plunged to a new pandemic low. Key indicators of consumer and industrial activity are on the rise in China.
Palladium, a metal used in catalytic converters to reduce emissions from gasoline vehicles, hit an all-time high this week for similar reasons. Between growing demand for cars, tightening pollution controls and production disruptions, the world is expected to run out of supply for a tenth consecutive year, according to UBS Group AG.
Meanwhile, Chinese authorities and the steel industry as a whole have pledged to cut production after reaching record levels last year. And China’s Tangshan steel center faces a series of production restrictions amid pressure to control emissions. Crude steel production nearly hit a record high in March, as rebar inventories fell for a sixth straight week, signaling strong demand in the middle of the construction season.
Aluminum prices are also on the rise, with London futures up about 20% this year, supported by expectations of further supply restrictions in China, the largest producer.
Supply concerns are skyrocketing Covid cases in Latin American countries, including Brazil and Chile, which threaten to curb mine production. The price hike caught the attention of unions and politicians in host countries. Chile’s copper industry faces a series of wage negotiations and Peru’s top presidential candidate wants to renegotiate contracts with the mines to channel their profits more to communities.
“Consumption increases in Europe, the United States and Asia, then we experience supply side tensions in Latin America, associated with very strong technical signals”, Michael Cuoco, head of sales of hedge funds for metals and bulk materials at StoneX Group, said by phone. âThere really is a perfect storm brew.â