Prices & Review

Overview (January 2021)

While the last three quarters of 2020 were a bull-ish time for base metals, the start of 2021 has seen the focus shine on the battery raw materials, with lithium carbonate and nickel sulphate prices in China and global cobalt metals prices all putting strong performances. The base metals, except for tin and nickel, have been more subdued. Broad market sentiment still seems to be willing to look past the mounting loss of life and ongoing destruction that Covid-19 is still causing, especially to travel, entertainment and retail outlets, and is focused on the recovery that the vaccines will bring increasingly as the year progresses. Many major equity markets set new record highs in January, or the in case of the Nikkei, a 30-year high, with the latest boost coming from US President Joe Biden’s plans for a $1.9 billion relief package.
While it is tempting, as well as responsible, to ask how many more fiscal promises can be baked into these already high market valuations before better times arrive, there has so far been little appetite to sell or sign of increased nervousness. Markets are generally holding up well, and gold is languishing around $1,840 per oz, down from the start of year highs at $1,960 per oz and last August’s record high at $2,074.25 per oz. Likewise, US ten-year treasuries have climbed in January to a high around 1.14 percent (more recently 1.1%), from the end of 2020 levels of 0.91 percent, which is another sign of market confidence (the low last year was around 0.5 percent). It is conceivable that lockdowns could hit industry activity again, while at the same time, the broader and faster spread of the virus could hit mining regions and logistics. The threat of potential supply disruptions does seem to be encouraging supply chains to carry more inventory. Shortages of critical parts are also surfacing, due to the disruption to semiconductor production in the first part of 2020, due to the surge in demand for gaming consoles, laptops, tablets and high-er-tech televisions has come about as a result of more people working from home.
The start of Joe Biden’s presidency should also be a bullish longer-term factor for the metals. In addition to the emergency relief package, Biden will likely push the country’s green agenda, which will speed up the US's electrification, boosting demand for most of the base metals and battery raw materials with it. While the outlook is bullish, save for a potential temporary correction given markets are looking overbought, there are potential headwinds for the markets to contend with. At some stage, governments will have to start rein-ing in ultra-loose monetary policy and stop offering rescue packages, which may lead to market jitters as was seen in May 2013, when the Fed began to wind in its asset purchases, which led to the ‘taper tantrum’ which led to the 2013 to 2015 economic downturn. But, given the pandemic is still raging and many industry sectors have been mauled, it seems unlikely governments will act anytime soon. That said, an official at China’s central bank has recently warned that loose liquidity could inflate an asset bubble and the bank it has started to withdraw some liquidity via its open market operations. The danger of this is that economies might begin to run hot later this year, which could be seen as inflationary, especially if commodity bottleneck also leads to another commodity bull-run.