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August 2021 Commodity Market Brief: Industrial and Precious Metals

Photo by Ricardo Gomez Angel on Unsplash

Commodity markets have been influenced by major decisions from the two largest economies in the world – USA and China – and also by concerns about the Delta variant. In this article, we will discuss the short-term outlook for industrial metals that are relevant for construction, and also precious metals.

Copper

Copper futures had been increasing since July 19, from $4.20/lb to a two-month peak of $4.60/lb on July 26. However, prices have dropped below $4.40/lb as of August 05. This has been influenced by several factors:

  • US manufacturing activity has slowed down for two months in a row, reaching a six-month low in July.
  • In China, factory activity had the lowest growth in a 15-month period.

However, the fall of copper prices has been slowed down by concerts about supply, after copper miners in Chile voted to strike on July 31. This will affect the Escondida copper mine, largest in the world, and als the Andina and Caserones mines.

Copper demand is expected to increase with the $1 trillion infrastructure plan, and US senators agreed on its final details on Sunday, August 01. The plan covers areas like roads, bridges, ports and communication infrastructure. If approved, this plan would create a high demand for several materials, improving the commodity market outlook.

Steel Rebar

Shanghai steel rebar had been trading below 5,000 yuan/tonne since late May, but prices increased sharply during the second half of July, reaching a 2.5-month peak of 5,705 yuan/tonne on July 31. During the first week of August, steel futures have been trading above 5,400 yuan/tonne.

The steel industry is responsible for 15% of emissions in China, and steel mills have been ordered to reduce production as a way to cut emissions. China will limit its 2021 steel production at the same level of 2020 – 1,065 million tonnes. Since the output for the first half of 2021 was 563.33 million tonnes, there are concerns about lower production for the second half of the year.

China has also increased export tariffs of 10-25% for steel products, while removing incentives for cold-rolled steel products. Depending on how China decides to cut its emissions, other commodity markets could also be affected.

Iron Ore

If China reduces steel production for the second half of 2021, the demand for iron can also be expected to decrease. 63.5% grade Iron Ore delivered at Tianjin had been trading above $200/tonne since late May, but it dropped below that price since late July. There is downward pressure on steel prices due to the expectation of low demand, combined with high supply and growing inventories in ports.

62% grade Iron Ore has shown a similar behavior, trading between $200 and $220/tonne since May, but dropping below $180/tonne as of August 05.

Precious Metals Commodity Market: Gold, Silver & Platinum

Gold has been trading above $1,800 per troy ounce since early July, reaching peaks above $1,830 per troy ounce. For comparison, gold dropped to almost $1,750/troy ounce in late June. The Federal Reserve has announced that economic conditions could be favorable for an interest hike until 2023, and this decision would be supported if US payroll reports (August 06) are lower than expected. Gold prices can be expected to increase in this scenario, according to Trading Economics.

Silver dropped to $24.5/ounce in late July, but it has traded above $25 during the first week of August. Other than being a “safe haven” metal against inflation, silver has technological importance: demand can be expected to rise with the increased adoption of solar panels, electric vehicles, and other green technologies.

Platinum prices have been steadily decreasing from a peak of $1300/troy ounce in February, after concerns about supply have been eased. Mining companies in South Africa, the top platinum producer in the world, are investing in their own renewable energy systems to avoid the disruption caused by power outages.

Source Trading Economics Bloomberg CNBC

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