Milwaukee South News

As economies worldwide begin to reopen, there has been a notable surge in the prices of industrial metals. This trend reflects various factors and conditions impacting these materials' markets.

According to a recent study by the International Monetary Fund (IMF), metal prices have climbed by 72 percent compared to their levels before the pandemic, reaching a nine-year high in May. Specific increases include copper, which is up 89 percent year-over-year in May, iron ore up by 116 percent, and nickel up by 41 percent. Although other commodities are also experiencing price hikes, their rate of increase has been more moderate.

The IMF study identifies four primary reasons for this disparity:

1. **Manufacturing-Based Recovery**: Manufacturing activities experienced less of a downturn at the onset of the pandemic and rebounded more swiftly than service sectors, particularly in China—a major consumer of metals. Conversely, sectors heavily reliant on energy commodities like transportation remain subdued. For instance, global road fuel consumption is still only at 93 percent of pre-pandemic levels, hindering a stronger recovery in petroleum prices.

2. **Supply-Side Factors**: COVID-19 temporarily disrupted many mining operations. Additionally, freight rates for transporting bulk materials reached a decade-high due to port congestion, quarantine restrictions, staffing issues with shipping crews, and rising fuel costs from spring 2020 lows—all contributing to higher metal costs.

3. **Energy Transition and Infrastructure Spending Expectations**: Optimistic expectations about transitioning to greener energy sources and ambitious infrastructure projects have further bolstered metal prices. These initiatives would elevate the "metal intensity" of the global economy significantly. For example, according to the International Energy Agency (IEA), a rapid energy transition could lead to a 40-fold increase in lithium consumption for electric vehicles and renewables while increasing graphite, cobalt, and nickel usage by approximately 20 to 25 times. Infrastructure programs within the European Union and United States are expected to boost demand for copper, iron ore, and other industrial metals.

4. **Storability of Metals**: Metals offer storage advantages over crude oil or some agricultural goods that require specialized facilities. This storability makes metal pricing more forward-looking and sensitive to interest rate changes—lower rates decrease the "cost of carry," which includes storage costs—and market expectations related to energy transitions and infrastructure spending.

Despite ongoing challenges ahead as prices continue their upward trajectory since summer last year, companies like Allis-Roller aim to successfully navigate these market dynamics regardless of future uncertainties.