Commodities Roundup: Metals recover; new copper contract; iron ore the star of 2020

For the buyers and category managers out there, especially those of you deep in the weeds of buying and managing commodities, here’s a quick rundown of news and thoughts from particular commodity markets, including industrial metals, iron ore’s 2020 and more.

MetalMiner, a sister site of ours, scours the landscape for what matters. This week:

Industrial metals bounce back

Industrial metals have enjoyed a strong recovery this year after experiencing the initial shock of the coronavirus pandemic.

But will the upward momentum continue into 2021?

“Will this buoyant backdrop persevere into 2021, consumers are asking themselves, should I be factoring in continually rising prices through next year?” MetalMiner’s Stuart Burns wrote.

“It would be a brave observer to bet against the Chinese economy but there are a number of factors to suggest the current drivers will ease into the spring of next year and that base metal prices could finish somewhat lower by the end of 2021, Capital Economics believes.”

For one, infrastructure-fueled demand will ease. In addition, once COVID-19 vaccines begin to be rolled out worldwide, mining production is expected to recover.

New copper futures contract

MetalMiner’s Maria Rosa Gobitz outlined the details of a new copper futures contract in China.

“On Nov. 19, the Shanghai International Energy Exchange (INE), a subsidiary of the SHFE, started trading new bonded copper futures contracts,” Gobitz explained. “This contract addresses the second of ‘two’ spot markets for copper — the tax-included domestic market currently supported by the dollar-denominated SHFE contract and the on-shore ‘bonded facility’ market based in Shanghai to be denominated in RMB.

“Not only does this create a new risk management tool for copper buyers, but it suggests China is now moving toward fulfilling its ‘dual circulation’ strategy and bringing its currency more fully into the global market.”

Zinc bull narrative

In other metals news, Burns delved into the bull narrative for zinc, which is up from $1,675 per ton earlier this year to around $2,800 per ton.

“In China, zinc seems to have been caught up in the stimulus narrative, drawn higher by steel demand where half of all zinc consumption ends up, as galvanized construction beams, bars and appliances needed to furnish those new apartments,” Burns wrote.

However, there may be more to the situation than meets the eye.

“Meanwhile, LME registered stocks have risen by 171,500 tons this year and from the LME’s new ‘off-warrant’ stocks report, a monthly count of what the exchange terms ‘shadow’ stocks, metal parked there has increased by a further 65,000 tons between February and September, in a similar way to the millions of tons of shadow aluminum stocks that have grown this year,” he wrote.

As such, the narrative could well change.

“While the industry and financial speculators can afford to continue building shadow stocks that may well prove to be the case, but a shock to demand, a surge in supply or a flattening of the forward curve making financing harder could all knock what looks like somewhat artificially supported market from enduring through next year.”

Steel gains

Elsewhere, steel prices continue to recover amid a demand recovery.

On the supply side, US Steel opted to restart its blast furnace #4 at Gary Works as of Dec. 8.

China and aluminum

Meanwhile, strong data from China is also powering a robust aluminum market, Burns explained.

“An early and strong rebound from Q1 lockdowns and significant stimulus investment that has made its way into property and infrastructure activity have boosted demand for all the base metals,” he wrote.

“However, aluminum has arguably seen the biggest benefit.”

Imports of aluminum raw materials bauxite and alumina surged over the first 10 months of the year. Furthermore, primary aluminum imports have also surged this year, particularly over the summer. Imports during the first 10 months of the year are 14 times greater than imports during the same period in 2019.

Iron ore is the star of 2020

However, with major gains all over the metals sector, iron ore is the real star of 2020, Burns explained.

“China’s iron ore imports fell for the second straight month in November. Imports dropped by 8.1% from a month earlier, Reuters reported,” Burns wrote.

“However, prices still rose strongly.

“China brought in 98.15 million metric tons last month, compared with 106.74 million tons of imports in October. Nonetheless, the November total rose 8.3% from November 2019.”