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The Cyclical and Structural Growth in Industrial Metals

The international economy has been weakening even before the outbreak of Covid-19. Japan’s economy shrank in the 4th quarter of the last financial year after an increase in the value added tax. Growth across several European nations came to a halt. The story is quite similar in Asia and the Americas.


For industrial metals, fragility in the international economy comes at a time when the world is overflowing in aluminium, copper, iron ore and steel. In the past quarter-century, steel production has grown by 150%, and copper mining supply has climbed by 125%. These growths fade when compared to the 225% surge in aluminium supply and the 250% growth in iron ore mining production.


An Introduction to Industrial Metals

Metals are often categorized into four key groups: base or industrial metals that include copper, aluminium, lead, iron, zinc, and nickel; precious metals, chiefly silver, platinum, and gold; nuclear energy metals, such as thorium, plutonium, and uranium while the rest are known as specialty metals.


Another key categorization is through scarcity levels. Rare metals are found in small amounts in the earth’s crust. More specifically, their concentration is between 1 and 1000 parts per million (ppm). Lead, zinc, copper, cobalt, and nickel are a few rare metals. Finally, there are extremely rare metals such as silver, gold, and platinum with a concentration of less than 1 ppm. Abundant metals, in contrast, include iron, aluminium, and silicon.


Nickel

Nickel is extremely prized for its corrosion resistance and is therefore used as a coating material for other metals as a protective layer. Additionally, nickel is used in making batteries, coins, and acts as a catalyst for hydrogenating oils. It is considered relatively critical in terms of environmental availability.


Lithium

Lithium is used mainly in rechargeable batteries for mobile devices and in alloys with aluminium and magnesium used in high-speed trains and airplanes. Lithium’s environmental criticality is minimal, and almost three-quarters of identified sources are likely to last well past 2050.


Cobalt

Cobalt is applied in the production of batteries and aircraft engines and to give a blue and green hue to ceramic objects. Its extraction is concentrated in Congo, which accounts for close to 70% of the global production. The political volatility of the nation describes why it is deemed to have an elevated level of geographical criticality.


Copper

Copper is a great indicator of the economy, as it is extensively used in various industries. Another reason that raises interest in copper is its apparent scarcity. Several researches have indicated previously that ores of lithium are about to be completely depleted, but recent findings have moved the spotlight onto copper, hinting that 90% of the presently known mines might run out of copper in 30 years. Copper is mainly generated in Chile and Peru with a combined share of 37% of the whole production. While the manufacture is not concentrated, but copper utilization is, with China consuming 51% of the copper demand globally. China is also a major player in the refining segment, with about 39% of refined copper production worldwide.


Impact of the Pandemic on the Global Metals Market

The metals markets responded in complete contrast to the oil market, where prices plummeted by close to 28% as the pandemic restricted air, ground, and water transportation worldwide. There are many possibilities for the metal markets’ performance:

  • Surplus inventories can be kept in storage while markets wait for demand recovery.

  • Consumers, who are shunning travel and reducing spending, could boost their savings rates and unleash pent up demand in the future.

  • Supply chain disturbances may necessitate higher production in future to ease demand.

  • Fiscal stimulus and lower interest rates could be useful, creating a sharp rebound in metals demand later in the year.

  • Even if transportation has a sluggish recovery, building and consumer goods sectors could bounce back quickly, steadying demand for metals.

Besides these positive interpretations, there are less optimistic prospects. Over the last 15 years, industrial metals have demonstrated a high association with the development of the Chinese economy but often with a substantial lag of up to six quarters. Also, the reason why metals prices have not exhibited a negative reaction could have to do with the lagged effect of China’s strong growth in the past few years.

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