The metals market is currently grappling with concerns about demand, and this remains a prominent topic of discussion at the annual London Metal Exchange Week. Traders, investors, and other industry participants convene during this event to negotiate deals for the upcoming year.
It is no surprise that sentiment among LME Week attendees on Monday was still pessimistic regarding near-term metal prices. Throughout this year, metal prices have been generally weak, with LME copper futures experiencing a decline of 3.4%, aluminum down 6.7%, and benchmark steel prices down 17%, according to pricing agency Argus Media.
Analysts predict that this weakness will persist into the next year due to various factors. Concerns over Chinese property demand, rising interest rates, and the overall vulnerability of the global economy have negatively impacted demand.
Laura Varriale, S&P Global Commodity Insights’ managing editor of ferrous metals EMEA, emphasized the significance of strong property construction performance, stating, “It is a worry if property construction isn’t performing well.” She made this statement during an event in London.
Notably, analysts across the board share a cautious outlook on metals. Higher interest rates and a strengthening U.S. dollar are expected to continue exerting downward pressure on prices in the short term. Saad Rahim, chief economist at Trafigura, pointed out how significant currency fluctuations can overshadow even the most compelling market fundamentals.
Rahim also noted that the U.S. Federal Reserve may implement one or even two more rate hikes in the future, depending on the strength of job growth and the impact of the Israel-Palestine conflict on oil prices. He affirmed that higher interest rates would undoubtedly affect future production investments as they increase project costs and alter project economics.
Aluminum Facing Pressure in 2024
By Yusuf Khan
Aluminum, a key metal in various industries, is expected to experience significant pressure in 2024 due to a surplus of over 2 million tons, according to analysts. Jorge Vazquez, managing director of Harbor Aluminium, predicts this surplus will persist for the next two years due to weak demand and high production rates for both primary and recycled aluminum. “Supply is booming,” Vazquez warns. In fact, production is projected to reach 77.4 million tons this year, a significant increase from just over 4 million tons in 2022.
High interest rates also pose a threat to aluminum prices, as they negatively impact major purchases such as houses and cars. Vazquez highlights how these rates essentially “destroy” the demand for big-ticket items. This correlation implies that when interest rates peak, aluminum prices tend to decline sharply.
However, industry analysts maintain a more positive outlook in the long term. They anticipate a rise in demand for various metals driven by the ongoing energy transition. Citi’s Max Layton, head of EMEA commodities research, suggests that copper prices could reach as high as $12,000 a ton by 2025, up from around $8,000 a ton. This increase is expected to be driven by growing demand from the energy transition. Copper stands out due to its unique attributes: it is essential for the energy transition, relatively environmentally friendly (ESG friendly), and has a highly liquid market. All of these factors indicate the potential for higher copper prices in the long run.
Moreover, there is an increasing uptake of green steel, with a growing preference for low-carbon products. This has resulted in premiums being paid for these eco-friendly alternatives.
In conclusion, while aluminum is expected to face pressure in the near future, particularly in 2024, the long-term prospects for metals like copper remain optimistic due to the ongoing energy transition. This transition, along with the rising preference for low-carbon products, is set to drive demand and potentially increase prices in the metal market.
