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Market sentiment for metals turned bullish in May, bolstered by a rebound in Chinese demand and lockdown measures easing in Europe and the U.S., as major economies begin reactivating as they emerge from the COVID-19 crisis. Iron ore was among the standout performers, with prices climbing 21% month over month led by rampant Chinese restocking. Prices for copper, zinc and aluminum were also higher in May, although nickel and lead edged lower after losing early gains amid increased volatility. Despite the improved sentiment, the global recessionary backdrop has weighed on the outlook for industrial metals prices but has helped to bolster precious metals benchmarks.
Silver prices surged 24% in May, boosted by a weak U.S. dollar and the metal's comparative underperformance relative to gold during the peak months of the pandemic. Conversely, the 2020 consensus price outlook for silver was downgraded by 2% in May, with ailing industrial demand continuing to weigh on sentiment. Expectations of a more protracted recovery in global industrial activity has helped to lower the 2021 and 2022 price outlooks by 0.8% and 1.5%, respectively. Gold prices climbed 3.3% in May, buoyed by U.S.-China tensions being exacerbated by the Hong Kong political protests. The upside was tempered by a strong rally in equity markets stoked with optimism for a recovery in economic activity, as lockdown measures start to ease in Europe and the U.S. The gloomy outlook for the global economy, however, saw forecast prices for gold revised higher in May, gaining 0.9% and 1.9% in 2020 and 2021, respectively.
The depth of the global downturn has also weighed on consensus 2020 prices for platinum and palladium, which were 2.5% and 1.1% lower as of May. The platinum market is expected to be in a large surplus in 2020, while the demand shock triggered by COVID-19 is expected to reduce the palladium deficit. Contrasting fortunes saw prices for platinum rise 8% in May, supported by reduced supply from South Africa, while palladium edged 1% lower.
At the start of June, iron ore climbed above US$100 per tonne for the first time since August 2019, rising from US$84/t at the end of April. The rally was triggered by a China-centric restocking boom as steel production expands to meet pent-up demand. Brazilian supply concerns fueled heavy restocking in May. Chinese mills sought a buffer against potential supply disruptions, as coronavirus infections soared in Brazil.
Despite the strong performance of iron ore, there are growing concerns that the Chinese recovery could fade over the second half of 2020, as the depth of the wider global downturn is revealed. Recent guidance from the World Steel Association points to a 6.4% drop in global steel demand in 2020, with double-digit declines forecast in Europe and North America. The gloomy outlook caused the 2020 iron ore consensus price forecast to be scaled back by 3% in May, while expectations of a more protracted recovery phase weighed on 2021-24 forecasts, which were down by 2%-3.3% from April.
Sentiment for a longer recovery period for the global economy gained momentum in May, contrasting with the previously assumed V-shaped rebound. This change helped to downgrade 2020 consensus prices for copper, lead and zinc by 0.7%-0.9% in May, with 1%-1.5% downward revisions for 2021. Conversely, prices for copper and zinc moved 7% and 1.4% higher in May, supported by mine supply restraints and tight availability of concentrates. Lead prices edged downward in May, however, while the consensus outlook is for reduced price expectations on par with those for zinc.
Following a strong start to May, nickel prices lost momentum at month-end, dampened by China-U.S. tensions amid political protests flaring up in Hong Kong. The pandemic has triggered deep cuts in global stainless steel output, which is expected to lead to a large surplus emerging in the nickel market in 2020. This has prompted further downgrades to consensus nickel prices of 1.3% in 2020 and 0.9% in 2021.
Lastly, sagging demand for electric vehicles helped pull May's consensus price forecasts for cobalt down by 6% in 2020 and 2.3% in 2021. Despite the downgrades, cobalt prices are still expected to rise by 3.3% in 2020, supported by reduced mine supply — notably from Glencore's Mutanda mine — and COVID-19 disruptions to refinery output.
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This article was published by S&P Global Market Intelligence and not by S&P Global Ratings, which is a separately managed division of S&P Global