Precious and Industrial Metals: February 2022 Market Brief

The metals market has responded to economic decisions recently taken by the US and China. Precious metals had volatile prices during the last few weeks, in great part due to the expected interest rate hike. The prices of gold, silver and platinum are currently under opposing market forces, according to Trading Economics: precious metals are a hedge against inflation, but the opportunity cost of holding them rises along with interest rates.

On the other hand, the outlook for industrial metals is being shaped by specific industries. Steel and iron ore prices had been decreasing during the last months of 2021, but they have rebounded since December. Lithium prices have been on the rise since late 2020, driven in great part by the rising demand for battery systems and electric vehicles. With respect to copper, the forecast points towards lower prices due to a combination of high production and lower demand.

Precious Metals: Gold, Silver and Platinum

On Monday January 31, Trading Economics reported the following prices for precious metals:

• Gold = $1,780 per troy ounce
• Silver = $23 per troy ounce
• Platinum = $1,050 per troy ounce

Gold experienced a 1.7% drop in January, caused by the expectation that the Federal Reserve will raise interest rates while reducing its balance sheet. While high inflation increases the demand for precious metals, high interest rates increase the opportunity cost of holding on to them. Although precious metals act as a store of value, they have no yield and many investors are shifting their capital to yield-paying assets. Silver and Platinum prices also fell by more than 1% since January 20, and this can also be explained by the upcoming Federal Reserve tightening.

The price forecast for the end of Q1 2022 is $1815.60 per troy ounce of gold, $23.76 per troy ounce of silver, and $1,004.56 per troy ounce of platinum. The 12-month outlook is $1,759.09 per troy ounce of gold, $22.31 per troy ounce of silver, and $934.48 per troy ounce of platinum.

Industrial Metals: Iron Ore and Steel

Iron ore and steel prices have followed a similar trend during the past few months, and they have been influenced in great part by demand expectations, possible supply disruptions due to Omicron cases, and the Chinese government’s decisions. Trading Economics reported that iron ore with 63.5% iron content surpassed $130 per tonne during the last days for January 2022, for a price level not seen since the first week of September 2021. At the same time, Shanghai steel futures reached their highest level since October 2021, surpassing CNY 5,000 per tonne (∼$786/tonne) before settling at around CNY 4,800 per tonne (∼$755/tonne). Since iron ore is the main input for steel production, the prices of both metals have responded to the same factors:

• Major iron ore supplies from Australia are facing a labor shortage, caused by a rise in COVID-19 cases, and this could disrupt shipments into China.
• China will apply stringent measures for steelmakers to cut emissions during the Beijing Winter Olympic Games, taking place from February 4- 20.
• Steel production in China will also be slowed down by planned factory maintenance and the Lunar New Year holidays.

Iron ore prices are forecast to reach $124.27 per tonne by the end of Q1 2022, and $111.08 per tonne within 12 months. The forecast for steel is CNY 4,621.24 by the end of this quarter, and CNY 4,307.10 within a 12-month period.

Copper Outlook

Copper prices reached $4.3 per pound on January 31, which is the lowest price in the last five weeks. The Chilean Copper Commission is forecasting a 4.1% growth in production for 2022, and a 5.5% growth in 2023. However, the top copper consumers are facing an economic slowdown, and higher interest rates in the US could reduce the purchasing power of copper importers. With the combination of high supply and low demand, copper prices are expected to decrease in the long run. The short-term forecast is $4.43 per pound by the end of the quarter, and $4.16 per quarter in 12 months.

Lithium Carbonate Outlook

While other metals have experienced highs and lows during the last 12 months, lithium carbonate prices have been sharply increasing since late 2020. Lithium carbonate prices have risen from CNY 39,000 per tonne (∼$6,131/tonne) in December 2020, to CNY 377,500 per tonne (∼$59,346/tonne) during the second half of January 2022. This is nearly a tenfold increase, driven by a high demand from battery manufacturers, and EV manufacturers in particular. Worldwide EV sales increased by around 160% in 2021, and this trend is expected to continue.

However, Trading Economics is forecasting that lithium carbonate prices will stabilize in the short term, reaching CNY 340,937.55 by the end Q1 2022 and CNY 319,226.00 within a 12-month period.