Optimism is building on the macroeconomic front for a better year in 2021 and that includes the metals industry, with lithium experiencing its first sustained price rise in three years in December 2020 and copper hitting an eight-year high in January.
The London Metal Exchange copper Grade A cash price hit $8,167 per tonne Jan. 7, its highest point since February 2013.
At the end of 2020, the price of the red metal was 26% higher compared to the start of the year and 68% above first-quarter lows, surging past $8,000/t on Dec. 18, 2020, on vaccine optimism, a weak U.S. dollar, low stocks and strong Chinese demand.
"With the vaccine rollout expected to boost the global recovery as 2021 progresses, the copper market is expected to move into a growing deficit, resulting in average upgrades of 2.5% to consensus copper price forecasts in 2021-25," S&P Global Market Intelligence's Metals and Mining Research team said Jan. 8.
The copper price will probably increase further in the medium to long term, driven by a jump in refined copper consumption needed to build electric vehicles, Eden Partners Executive Director Nicholas Boyd-Mathews said in a Jan. 9 LinkedIn post.
However, the supply-demand balance could be hit in the short term as additional supply comes online and regulations on the use of scrap copper as a substitute source are eased in certain jurisdictions, he said.
Eden Partners said in a Jan. 6 note that "the smooth distribution of vaccines across the globe remains a key driver of markets in early 2021" while noting that several distribution hurdles remain along with issues regarding allergic reactions and public acceptance.
There is still much concern over COVID-19 and "noise" surrounding the vaccine, but "things will lighten up" over the course of 2021, such that the second half will see a "synchronized global recovery," Carsten Brzeski, ING Research global head of macro, said in a same-day note.
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London advisory SP Angel said in a Jan. 8 note that copper has been supported by growing optimism that a global economic recovery in the first half of 2021 will fuel demand for industrial metals, along with investors betting on government stimulus leading to a "green infrastructure boom."
The green infrastructure boom is expected to be focused in the U.S. and in China, where Western Australian lithium producer Pilbara Minerals Ltd. recently reported rising customer demand and "an upward trend evident in the price for lithium chemicals."
The company cited S&P Global Platts' battery-grade lithium carbonate pricing, which soared 35% from lows hit in August 2020 as of Jan. 6, the day Benchmark Mineral Intelligence said it had observed lithium prices within China starting to rise for the first time in three years.
Benchmark noted increases in Chinese domestic chemical prices for lithium hydroxide and carbonate throughout the fourth quarter of 2020, marking the end of 2.5-year bear market.
This is significant as "China has often proven a bellwether for the direction of global prices, with greater liquidity in the domestic market making pricing more responsive to market imbalances," the Benchmark analysts said.
S&P Global Platts and S&P Global Market Intelligence are owned by S&P Global Inc.
