Weakening demand in global metal markets due to limited supply?

Metals markets across the world .

In April and May, metal prices went down because China's demand was lower because of strict measures to stop the spread of the pandemic. After Russia invaded Ukraine in March, fears about supply caused prices to hit all-time highs in March. Prices are likely to stay high in the short term, though, because of uncertainty about supply and historically low stocks. However, prices are likely to go down later this year as global economic growth slows. In the long run, the energy transition could give some metals, like aluminium, copper, and nickel, a new boost in price.

Demand for metals has dropped, mostly because the Chinese economy has slowed down and because lockdowns in major cities have made it harder to predict growth. Copper prices, which are a good indicator of the world economy, went down a lot in May after hitting a nominal all-time high of $10,845 per metric tonne in early March. In April, China's manufacturing PMI fell to 46, which was the lowest number since February 2020. In April, the world's production of cars dropped sharply, which was mostly due to the slowdown in China. Since late 2021, the demand for electronics has also slowed.

But the rise in energy prices has made people worry about the supply of aluminium and zinc, which require a lot of energy to make. Early in March, aluminium prices went over $4,000/mt, which was an all-time high. In mid-April, zinc prices hit a 15-year high of $4,500/mt. Due to the high cost of energy, European aluminium smelters will have to cut their output by about 17% in 2022. Several zinc smelters have closed, including those owned by Glencore and Nyrstar in Italy and France, respectively, which were among the largest zinc producers in the world.

Sanctions against Russia could cause more problems with getting things. Due to sanctions, Russia, which makes 6% of the world's aluminium, has lost access to key inputs. Due to Australia's ban on alumina exports to Russia, this includes 2/3 of its supply of alumina, which is a key ingredient in making aluminium. Russia also has 6% of the world's nickel and 20% of the high-grade nickel used to make batteries. As a result of sanctions, Russian mining giant Nornickel has been having trouble getting supplies.

Most metals are at an all-time low in terms of stock. As energy costs have gone up, the supply of refined metals has shrunk to levels that have never been seen before. Aluminum and nickel stocks have dropped the most this year because they are among the metals that are most vulnerable to supply problems in Russia.

Continuing problems with the mines' supplies add to the risks. Recently, nearly 20% of Peru's copper mine capacity has been shut down because of labour disputes. In Chile, production was slowed by a lack of water. Tin supply has been hurt by problems with how export licences are given out in Indonesia and by random closures along the border between Myanmar and China's Yunnan province. Australia's iron ore production has been messed up by a lack of workers because of a pandemic, and Brazil's production and exports have been cut by a lot because of bad weather.