By Yusuf Khan
Demand concerns are plaguing the metals market, and remain the dominant topic of discussion at the start of London Metal Exchange Week, an annual bash where traders, investors and other market participants meet to hammer out deals for the coming year.
Sentiment remained negative among LME Week attendees on Monday for near-term metal prices, which have been broadly weak this year so far, with LME copper futures falling 3.4% and aluminum down 6.7%, and benchmark steel prices down 17%, according to pricing agency Argus Media.
This weakness is likely to persist into next year, with worries over Chinese property demand, rising interest rates and weakness in the global economy hitting demand, according to analysts.
“It is a worry if property construction isn’t performing well,” said Laura Varriale, S&P Global Commodity Insights’ managing editor of ferrous metals EMEA, speaking at the event in London.
The subdued mood from analysts was consistent across metals, with higher interest rates and a rising U.S. dollar likely to continue pressuring prices in the near-term. “Big dollar moves can outweigh the most compelling fundamentals,” said Saad Rahim, chief economist at Trafigura.
Rahim added that one–possibly two–more rate hikes from the U.S. Federal Reserve could be on the horizon, if jobs growth remains strong and oil prices rise on the back of the Israel-Palestine conflict. “Higher rates are going to impact investments for future production,” he said, adding that higher costs make project economics look different.
Aluminum in particular is likely to see pressure in 2024 analysts said, with Harbor Aluminium’s managing director, Jorge Vazquez, predicting a surplus of over 2 million tons for the next two years, with weak uptake and high-production rates for both primary and recycled material. “Supply is booming,” he said. Harbor forecasts production to be 77.4 million tons this year, up from just over 4 million tons in 2022.
Aluminum prices also typically fall sharply when interest rates peak, Vazquez said. “[High] interest rates basically destroy purchases of houses, cars and pretty much every big ticket item,” he said.
In the longer term, analysts are much more bullish, with demand from the energy transition set to fuel uptake of a variety of metals. Copper prices could rise to as much as $12,000 a ton by 2025, from around $8,000 a ton on rising demand from the transition, according to Citi’s Max Layton, head of EMEA commodities research. Copper has a unique set of characteristics in that it is required for the energy transition, is relatively ESG friendly and the market is highly liquid–all of which should mean higher prices long term, Layton said.
Uptake of green steel is also rising, with premiums being paid for low-carbon products, Varriale said.
Write to Yusuf Khan at [email protected]
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