APEX 2020: Winners predict ‘firm but bumpy’ growth for base metals in 2021; bullish for gold
The winners of Fastmarkets’ Apex 2020 price forecast contest set out their projections for factors that will most influence base metals, precious metals and steel raw material prices in 2021, with Covid-19 vaccinations a constant.
ED&F Man’s Edward Meir, who took the top price for base metals predictions in 2020, sees firm base metals prices in 2021. “The reason we’re not super bullish is because we think that much of the enthusiasm has been priced in by the market,” the head of commodity research at ED&F Man said.
“We have a little bit more of an upside to go but given that growth is going to be somewhat bumpy, we don’t think metals are ready to take off. For them to take off we need to see more synchronized growth and all metals firing on all cylinders, and we’re not going to see that this year,” he added.
The Covid-19 vaccine is going to cast a shadow a little while longer on markets, Meir said, because the inoculation programs are taking longer to materialize than expected in some places.
Meir also notes that, assuming a “return to normal” in global economies, there may not be a subsequent increase in metal demand because patterns of consumption will have changed.
Right now everyone is stuck at home, fixing their kitchens, buying new cars and new electronic products, “Amazon is shipping things left right and center to our families, and all of this is keeping manufacturing and industrial sectors strong,” he said.
While travel, tourism and similar service sectors are struggling now, the dollars will be spent in those industries as opposed to “toasters, new patio furniture and more laptops” which are keeping metals demand largely afloat.
A cloudy trading and cross border investment picture, together with the erasure of tightness for scrap material - an increasingly attractive alternative to main stock - should keep a lid on metal prices too, he believes.
One of the big drivers in the market, the “hot money” coming from investment and hedge funds, also kept base metal prices buoyant for the past six months. “The problem is that they like to ride the trend, and if the trend is sideways, they won’t hang around. They like to see sustained trends and if prices start going flat, they will become uninterested,” Meir concluded.
Platinum and palladium will remain contingent largely on the automotive industry given their primary uses in diesel and gasoline-powered cars, respectively, as catalytic converters to reduce emissions they produce.
Although the European Automobile Manufacturers Association reported that European car sales fell by 24% last year, the biggest drop on record, meaning the road to recovery is steep, analysts such as the winner of 2020’s Apex contest for precious metals, ING’s Wenyu Yao, are optimistic of a recovery this year.
There is also an expectation that industrial demand will increase for the two metals given more stringent emission-cutting regulations coming into force in countries such as China and India, leading to higher demand for both platinum and palladium with the amount needed to fulfil new requirements set to increase too.
Yao says that both metals will remain in deficits this year, but that platinum has the potential to outperform palladium, in part because its correlation to gold.
“Since 2014/15, platinum has been the underperformer, seeing larger discounts than its counterpart on gold prices which got deeper and deeper, but since the end of last year there’s been a bit of a restoring of these discounts, and we see a potential for platinum to play catch-up with gold, so you will see these discounts narrowing this year,” she said.
Yao remains bullish on gold following an outstanding 2020, when the “the risk and uncertainty of Covid-19 drove people to gold as a safe haven asset,” and led it to record high prices of over $2,060 per tonne, she said.
Rising inflation expectations due to the ‘Blue wave’ that has given Democrats the upper hand in the US Senate and secured Joe Biden’s election, a weaker dollar and weakened five-year and 10-year real yields will all be major factors in keeping gold’s bullish cycle running.
“India and China, big consumers of gold, are quite sensitive to high prices and uncertainty. But as the Covid-19 situation in those countries get better, physical demand there will improve, too. Central banks will also return to buying gold, particularly with oil prices becoming more stable,” Yao added.
Steel raw materials
Prices for steel raw materials - coking coal and iron ore - continue to be inextricably linked to China; the country produces 53% and consumes 50% of iron ore that is globally available.
Casper Burgering, who took the top position for steel raw materials in 2020, projected that the country will continue to be dependent on Australia and Brazil for good quality ore needed to make top-quality steel.
While there may be a pause in activity during the Chinese New Year holiday (February 11-17), the analyst projects demand for steel in China will remain strong given the country’s economic recovery pace: industrial production climbed 7.3% in December 2020, after a 7% gain in the previous month.
“There is a downside risk to prices if China tempers its economic stimulus in 2021, but for now I think that current stimulus will continue to bode well for steel demand and iron ore demand,” he said.
Coking coal’s price will also continue to be in the hands of China, which propelled itself on quality reserves domestically in 2020.
Since China banned imports of Australian coking coal in October (together with the expectation that the ban will be extended into the new year), supplies will be scarce going forward from the island, but China will continue to turn to other countries such as Canada for supply when needed.
“Given the steel demand trends in India and Japan, I also expect that demand for coking coal will remain sound in those two countries this year,” Burgering said.
All of this, however, is dependent on the successful roll-out of Covid-19 vaccines. Should the vaccination strategies continue according to plan, economic activity will recover strongly in the second half of 2021, the analyst said. If there are hiccups, sentiment will go down and price pressures could emerge in the ferrous market.
Burgering predicts an end-of-year price of $129 per tonne for iron ore and a price of $113 per tonne for coking coal at the end of 2021.