As economies reopen in various parts of the world, prices of some commodities have risen, including the prices of key industrial metals. The price rally of metals depends on how many factors are at work to what extent steam can be lost.
As our latest chart of the week shows, the price of metals is up 72% compared to pre-epidemic levels – up from a nine-year high in May. This increase is widespread in industrial metals – copper 89%, iron ore 116%, and nickel 41% in May.
Prices of most agricultural and energy products are also monitored upwards, but at a slower rate. Energy products, in particular, are only a few percentage points higher than in pre-infectious conditions.
Why are metals more expensive than other materials? There are four goals:
1.Production-based recovery: Production activity did not decline at the onset of the epidemic and services recovered more quickly, especially in China, which is a major consumer of metals. At the same time, sectors such as the energy sector, which is as important as the transport sector, are depressed. For example, global road fuel consumption is still 93 percent at pre-epidemic levels, which prevents petroleum prices from rising further.
- Distribution side factors: Many mining activities are temporarily affected by COVID-19. What’s more, cargo rates for total cargo reached a ten-year high due to congestion at major ports, isolated restrictions, the current problems of the crew, and the recovery in fuel prices from deep tanks in the spring of 2020. For the price of metals.
- Expectations for Rapid Energy Change and Infrastructure Costs: Moderate expectations about the pace of change for a greener economy and ambitious infrastructure projects have given further impetus to metals prices. Both will increase the “metal intensity” of the world economy. For example, a rapid energy conversion may require a 40-fold increase in lithium consumption for electric cars and renewable materials, while the consumption of graphite, cobalt, and nickel for these purposes may increase by 20 to 25 times. International Energy Agency. Ambitious infrastructure projects in the European Union and the United States will increase demand for copper, iron ore, and other industrial metals.
- Stability of metals: Metals are easier to store than crude oil or some agricultural products and require special facilities. This makes their prices more forward-looking and, therefore, more sensitive to changes in interest rates. Such as market expectations, rapid energy transfer, and infrastructure cost.