Metal Price News - March
The metal markets are all focused on the war in the Middle East.
As we wrote in our extra edition on March 6, the war has caused aluminium prices to soar, mainly due to the unrest in the Strait of Hormuz, which has trapped large quantities of aluminium inside the Persian Gulf.
But as the war drags on and energy prices remain high, more economic consequences are beginning to emerge.
Macroeconomic developments
The war in the Middle East has pushed the oil price up by more than 40% over the past two weeks. When we look at the financial markets, we can see that stocks are falling, but the "safe haven" investments such as bonds, gold and silver are rising. These are classic signs that the market fears a major economic downturn.
We are also seeing concerns that interest rates and inflation will rise again, which will slow down economic growth. This is especially likely in countries that are highly dependent on fossil energy - e.g. China, Japan and several emerging market countries. If the economy loses momentum in these countries, it could spill over to Europe and the United States.
To mitigate rising energy prices, some strategic oil reserves have been released. The hope is that this will lower oil prices and cause inflation to slow down again. The problem is that the strategic oil reserves will run out sooner or later, and it remains unknown when Trump will end the war.
Aluminium
Last month, we wrote that Donald Trump can directly impact the aluminium price. That has certainly been confirmed now.
Aluminium is directly affected by the war because a significant share of the global aluminium production is shipped out through the Strait of Hormuz. It is not possible to start production elsewhere on such short notice, so right now these quantities are lacking on the world market. You can get the full story here.
The market is trying to find a new stable price level under these changed conditions, and that is likely to end up around $3,450/t. However, if we look at the expectations for the price in 3-4 months, it is significantly lower. This means that the markets right now expect the war to be over in 1-2 months so that production will be back to normal in 3-4 months. If that timeline does not turn out to be true, the price drop will be pushed further into the future.
Copper
It may seem counterintuitive, but the war has caused the price of copper to fall by about 5%. However, this is only the metal price in itself, and we may well see rising oil prices push up production and freight costs for copper products.
Since copper production is not directly affected by the war, the price is a reflection of how investors are feeling – and they are feeling nervous. If the economic downturn becomes a reality, demand for copper will fall. The markets are already preparing for this risk by minimising their purchases at a high price point.
Stainless steel
Stainless steel is also not directly affected by the war in the Middle East, and the nickel price has not reacted to the war yet. However, rising oil prices will have an impact on production and freight costs. The decisive factor for stainless steel – based on what we know right now – is whether the war ends soon or not.
On a positive note, the fact that CBAM and the safeguard quota are pushing more production to Europe will alleviate the pressure on freight prices. But it is not enough to eliminate the problem and, as we have written before, European production may face bottlenecks and thus rising prices.
All in all, we can expect rising prices – and nickel could also start to rise, if the war goes on for a long time.
Sheets/plates
When the market price goes up, so does the scrap price. Since scrap is an essential ingredient in production, a high scrap price is reflected in the final price. We have already this movement in March, and prices will continue to rise into the summer.
We still expect shortages to a greater or lesser extent in the near future, until European mills fully catch up to the new demand situation. Flat rolled products in 1000 mm width will be the main issue.
Right now, the market is fairly calm – but anything can happen from here.
Bars
European plants are benefitting from the fact that European companies have a strong incentive to buy in Europe to avoid high taxes and duties on imports from Asia.
Last month, we wrote about the possibility of new trade agreements to facilitate continued imports from Asia. But there is no news on this topic, and we expect base prices to continue upwards.
