Participants holding material in the current bull run metals market probably feel a bit like Bitcoin investors lately.
It wasn't that long ago that Bitcoin was worth pennies, or less, and many had given up on its prospects for achieving real value. It's now typically priced north of $55,000 per coin—a hefty return for those optimistic enough to go long on the cryptocurrency.
Similarly, just months after some products within the metals complex were plumbing multi-year lows and bears were predicting an extended downturn, pick just about any one now and you'll likely find it trading near an all-time high.
US hot-rolled coil is a good example. While the COVID-19 pandemic still had the global economy staggering, S&P Global Platts' US Midwest HRC assessment dipped to a 2020 low of $439.25/st in early August.
HRC, typically a bellwether of the industry's health, is currently the most expensive it's ever been at more than $1,320/st—nearly double the 10-year average and roughly 200% above that August low.
The US market hasn't seen similar pricing since the runup to the Great Recession, when HRC last broke through the $1,000/st barrier. Talk of the "grand a band" days, as some playfully called them, now seems quaint.
There's a similar story in ferrous scrap, a main feedstock for electric-arc furnace steelmaking. Platts' US shredded scrap assessment currently sits around $446.25/lt—about $115/lt over its historical average and a level not seen since 2014.
Not to be outdone, US nonferrous pricing has been on a tear of late, too. The Platts Midwest aluminum transaction premium recently hit a 29-month high of 20.5 cents/lb. That's still below the all-time peak of 24.25 cents/lb seen in January 2015, but it's more than double the multi-year low of 8 cents/lb reached in May 2020.
Copper is at a 10-year high of more than $9,144/mt, while nickel hit $19,689/mt late last month—the highest level since July 2014. Nickel's since dipped into a range of $16,100-$16,500/mt, but many expect it to rally again.
Rising demand, supply tightness
Clearly, whether elevated pricing is a positive or a negative all depends on which side of the buyer-seller equation one sits. As an independent price reporting agency, Platts has no interest or financial stake in whether commodities prices rise or fall. Our only objective is to offer robust assessments that reflect current market dynamics and bring transparency to opaque markets.
There's nothing opaque about what's behind these elevated metals prices, though. In general, it's a matter of traditional economic fundamentals—supply is tight, inventories have been drawn down and demand is improving.
Producers on both the ferrous and nonferrous sides of the market have struggled to catch up with the demand uptick ever since they idled capacity due to the COVID-19 crisis early last year. Throw in US tariffs on steel and aluminum imports, and it's easy to see why there's upward pricing pressure.
The real question is, when might that pressure ease? Looking at the market dynamics, it doesn't look likely to be anytime soon.
Most North American flat steel mills are unable to get additional spot deliveries to customers until May or later. Import activity is increasing, but buyers still face long delivery times for offshore purchases, no matter where they're coming from, since supply is tight in a number of regions globally. Service centers can't find spot material to replenish stocks, and mills are already pushing for additional price increases.
In the steel scrap market, severe weather this winter reduced collection rates. Demand has increased as finished steel prices have risen, and supply chain disruptions related to the auto industry's semiconductor shortage mean less scrap is being generated.
For aluminum, the US market is a net importer and questions linger regarding the extension of quotas on Canadian exports. Canada is America's largest aluminum supplier, and domestic demand continues to exceed supply.
Copper and nickel are tied tightly to the electric vehicle and energy storage sectors, where demand continues to rise, as well. As the US and Chinese economies continue to recover, and stimulus plans target infrastructure and renewable energy in both countries, consumption of both metals is likely to increase.
With vaccine rates climbing in the US at least, more potential consumers will not only be out and about but looking to spend their recent American Rescue Plan Act stimulus checks. With both prices and demand buoyed, many are increasingly bullish that this run could continue for some time.
That's saying something. After all, it wasn't that long ago that finding any metals market participants long on optimism was like finding a Bitcoin bull.