As economies reopen in various parts of the world, metals prices have increased by 72 per cent relative to their pre-pandemic levels – reaching a nine-year high in May 2021. The increase has been broad-based across industrial metals – copper is up 89 per cent in May 2021 (year-over-year), iron ore is up 116 per cent, and nickel is up 41 per cent. The prices of most agricultural and energy commodities are also tracking upward, but at a slower rate. Energy commodities (oil, coal, and natural gas), in particular, sit only a few percentage points above pre-pandemic levels. The four key factors for this rally are:
A manufacturing-based recovery
Manufacturing activity did not slump as much at the start of the pandemic and recovered more quickly than services, especially in China, which is the major user of metals. At the same time, sectors in which energy commodities feature prominently, like the transportation sector, remain depressed. For example, global road fuels consumption is still at 93 percent of pre-pandemic levels, restraining a further rebound of petroleum prices.
Many mining operations were temporarily disrupted by COVID-19. What’s more, freight rates for the transportation of bulk materials reached a ten-year high due to congestion in key ports, quarantine restrictions, ongoing problems staffing shipping crews, and a rebound in fuel prices from the deep troughs in Spring 2020. This all added to the cost of metals.
Expectations for faster energy transition and infrastructure spending
Buoyant expectations about the pace of the transition to a greener economy and ambitious infrastructure programs gave metals prices an additional boost. Both would increase the “metal intensity” of the global economy. A fast energy transition, for example, could require a 40-fold increase in the consumption of lithium for electric cars and renewables, while the consumption of graphite, cobalt, and nickel for these purposes may rise around 20 to 25 times, according to the International Energy Agency.
Storability of metals
Metals are easier to store than crude oil or some agricultural goods, which need special facilities. This makes their pricing more forward looking and, thus, are more sensitive to changes in interest rates. A faster energy transition and infrastructure spending is also helping the buoyancy of prices.