Commodities are healthy but supply concerns are still a concern | Item


Pedal to metal

Copper prices are a striking distance from their all-time highs reached in 2011, while iron ore prices have reached record highs and are getting closer and closer to $ 200 / t. China has played a key role in the large-scale rally we’ve seen in the metals complex, with its post-Covid infrastructure projects boosting infrastructure projects and, in turn, boosting demand for metals. However, it is not just China where we are seeing a recovery, global demand is making a comeback as more economies reopen and downstream sectors resupply from the lockdowns induced by the crisis. pandemic. US plans for large spending on infrastructure have only provided additional support to the markets, with investments planned for electric vehicle infrastructure, power grids, as well as roads and bridges.

The fundamentals for most metals are constructive, with the recovery in demand helping to tighten balance sheets. Visible inventories have generally declined, including in China, where we have entered a period of generally higher demand. However, most metals markets entered this period of seasonal strength in demand with below-average domestic inventories, which helped support prices.

Supply issues have also become more of a concern for certain metal markets. There were concerns about the supply risks around copper from Chile, given the latest restrictions linked to Covid-19, as well as strikes at ports, although this does not appear to have had much of an impact on offer. However, it is the steel and aluminum market where there has been a lot more noise around the supply. Regional government restrictions in China for the aluminum and steel industry have raised concerns about tighter domestic supply, and obviously with China a key consumer of metals, sealing or even the Perceived tightness has ramifications for the global market.

Greening the Global Economy Should Benefit Demand for Metals

In addition to the constructive short-term fundamentals, the long-term narrative is also quite optimistic, as the greening of the global economy should benefit demand for metals. However, it is in the medium term that we believe we should see a downward correction for most metal prices. If we use copper as an example, the supply situation starts to improve as we move into the second half of this year, which should help alleviate the tightness that we are currently seeing in the market, and in done, we see copper. market returning to a surplus in 2022.

In addition, the Chinese government has expressed concerns about rising commodity prices, so the market should not rule out the possibility of government intervention to cool the markets. This could include releasing metals from state reserves or tightening credit conditions.

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