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Strong raw material demand sustains markets

Record-high prices for metals – and particularly copper – ease as stocks grow but recovering economies boost trader confidence.

The shine has come off copper slightly after a month in which its three-month price fell from over US$ 10 200 per tonne on 1 June to US$ 9 374.50 per tonne on the final day. After a period in which copper and iron prices reached record highs – copper was US$ 10 500 per tonne in mid-May – several reasons have contributed to the decline. None, however, undermines the general optimism around the red metal because of the anticipated worldwide growth in electric vehicles and the metal’s key role in their production.

In the US, copper prices fell after the Federal Reserve brought forward its expectations for raising interest rates. More broadly, downward pressure on prices followed China’s decision to release industrial metals from its national reserves to curb surging commodity prices. Concern over commodity price rises was first expressed by Chinese officials in May at a  meeting with the biggest iron ore, steel, copper and aluminium producers. Then the National Food and Strategic Reserves Administration said it intended to sell 20 000 tonnes of copper, 30 000 tonnes of zinc and 50 000 tonnes of aluminium in early July.

Reuters reported these totals accounted for only 2.3% of China’s copper output in May and 4.4% of imports of unwrought copper in the same month. Another challenge for traders has been worries about sending cargoes to Chinese ports implementing tougher quality controls on imports off secondary materials. Anecdotal reports suggest they are diverting cargoes elsewhere in Asia and to Europe at discounted rates just in case.

Strong year

Looking back, the US Bureau of Labour Statistics reported that all scrap commodities were up for the 12 months ending May 2021. According to the Producer Price Indexes, copper base scrap led the way rising 89.6% over the period. Metal markets in Europe have remained buoyant in recent weeks even though higher prices are likely to be behind us for the time being.

The highest non-ferrous prices were on the LME in May after which they fell back in some cases and have since moved sideways. High prices sometimes bring noticeable additional costs in retail not because the margin changes but that the costs of bridging loans or credit insurance increase. Lead reached a new year-to-date high of US$ 2 340 per tonne on 30 June.

The European economy is in a curious situation. Despite coronavirus, industry is booming in many areas, such as in construction, transport or mechanical engineering, all of which need raw materials. While the supply situation was generally good in the first quarter of 2021, there were supply bottlenecks from April, which in turn resulted in sharply rising prices. Industrial metals were always available, not least because of the well-functioning trading and recycling structure in Europe, but rising raw material prices also had an impact.

In addition, there were reports of logistics problems and concerns that metal could become scarcer in the second half of 2021. A survey carried out in Germany at the end of June showed that around 60% of commercial enterprises do not expect the raw material shortage to ease this year.

The full non-ferrous report will be published in our next issue!

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