Here’s what’s in store for industrial metals, after the 2020 rally for steel, iron ore and copper

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Here’s what’s in store for industrial metals, after the 2020 rally for steel, iron ore and copper


Industrial metals have extended their 2020 rally into the new year, with finished steel prices trading near a record, iron ore, a feedstock for steel, holding ground near a nine-year high, and prices for copper at their highest since 2013.

Those metals have recovered to pre-pandemic levels and “so far, there are no signs of wear to the commodities rally so we expect prices to increase at least throughout the first quarter of the year,” said Maria Rosa Gobitz, senior research analyst at MetalMiner, which provides sourcing and trading intelligence for global metals markets.

The prospects for some of the metals further out, however, look brighter than others.

Read: Palladium eyes fresh record highs in 2021 with travel set to climb

U.S. finished steel prices traded near their all-time highs, with the daily Platts U.S. hot-rolled coil price at $1,112.23 per metric ton on Jan. 5, not far from the record of $1,184 seen in July 2008, according to data from S&P Global Platts.

For steel, “it is Economics 101 at this point, not enough supply and too much demand,” said Michael Fitzgerald, managing editor, ferrous metals U.S., at S&P Global Platts. Overall U.S. steel production in 2020, year to date as of the week ended Dec. 26, was down by an estimated 17.7% from the 2019 year to date period, he said, citing data from the American Iron and Steel Institute.

Despite economic woes from the pandemic, steel prices rebounded quickly given the “speed at which the steel producers reduced capacity, which reduced supply, while at the same time demand” from the auto industry, building and construction, “rebounded much more quickly,” said Greg Bassuk, a co-founder and liquid alternatives manager at AXS Investments, which provides the AXS Sustainable Income fund
AXSKX,
.

Global steel demand this year is expected to climb by 4.1% from the 2020 level, according to the World Steel Association.

Steel producers showed “discipline,” avoiding overproduction and the industry has continued to consolidate, which furthers that supply constraint, Bassuk said. Last year, Cleveland-Cliffs Inc.
CLF,
-0.03%

acquired AK Steel and ArcelorMittal USA.

Steel prices
could continue to rise into at least the first quarter of the year, but prices
may “stall” as new production capacity comes online as planned, and mill
capacity utilization rates continue to increase throughout 2021, said MetalMiner’s
Gobitz.

Meanwhile, iron ore, which is used to produce steel, climbed to a more-than-9-year high. The January futures contract for 62% iron-ore fines delivered to China on Comex
TIOF21,
+0.39%

settled at $169.31 per dry metric ton on Thursday, the highest finish since September 2011, according to Dow Jones Market Data. Prices based on the most-active futures contract gained about 70% in 2020.

The S&P Global Platts IODEX, the spot price of 62% iron-fines delivered to China, hit its highest since May 2011 at $176.90 per dry metric ton on Dec. 21. It was at $167.95 per dry metric ton on Jan. 6.

Iron ore supplies remain constrained, said John Kartsonas of Breakwave Advisors, the adviser for shipping exchange-traded fund Breakwave Dry Bulk Shipping
BDRY,
+9.32%
.
Australia and Brazil account for almost 90% of iron ore imports into China, and while Australia is exporting at record high rates, 2020 Brazil exports were the lowest in a decade, he said.

Iron ore production at Vale SA
VALE,
-1.06%

hasn’t been able to fully recover following a 2019 fatal dam failure that halted output at a key mine.

Still, Kartsonas expects iron ore prices to “gradually decline” toward $120 as Vale “will mostly deliver this year on its promises.” Vale estimated iron ore production volume of 315 to 335 metric tons in 2021, up from 300 to 305 metric tons last year.

Keep in mind, however, that “any negative impact by inclement weather either from Brazil or Australia and iron ore can easily go to an all-time high of $200,” says Kartsonas.

Copper, meanwhile, has benefited from a “favorable outlook for the Chinese economy, as well as strong infrastructure demand,” said John Caruso, senior asset manager at RJO Futures. He said prices for the metal have a chance to reach $4 a pound next quarter.

The most-active March copper futures contract
HGH21,
-1.12%

HG00,
-1.12%

ended at $3.696 a pound on Thursday to mark the highest settlement since February 2013, according to Dow Jones Market Data. Prices for the metal climbed by almost 26% in 2020.

Demand for
copper “should stay healthy” through the first half of this year, but “may
taper off in the back half of the year as we may see some more economic
turbulence” in the third and fourth quarter, said Caruso.



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