Four Factors Fueling Increase in Price of Metals
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Posted On: 06/28/2021 4:49:46 PM
Four Factors Fueling Increase in Price of Metals
The prices of various metals, including industrial metals, have been rising, driven by economies around the world reopening. Thus far, metal prices have surged by 72%, in comparison with the levels observed prior to the pandemic.
Earlier in May, prices hit a nine-year high, with the increase mainly influencing industrial metals such as nickel, iron ore and copper, which were up by 41%, 116% and 89%, respectively. Apart from this, the prices of some energy and agricultural commodities have also risen but at a steadier rate.
So why have the prices of metals surged in comparison to other commodities?
Well for starters, this may be due to a few factors on the supply side. The onset of the coronavirus pandemic disrupted most mining operations, which resulted in temporary shutdowns. The pandemic also imposed quarantine restrictions, which caused issues with staffing shipping crews and congestion in major ports, which significantly increased freight rates for bulk material transportation, adding to the cost of different metals.
In addition to this, the ballooning expectations on infrastructure programs and the rate of transition to a green economy also gave the prices of metals an additional boost, as the green economy would grow the metal intensity of the international economy. The International Energy Agency notes that the consumption of metals such as nickel, cobalt and graphite will increase by about 25 times as the rapid energy transition occurs, with the consumption of lithium for renewables and electric cars also expected to rise significantly. Additionally, infrastructure programs in the United States and the European Union will also increase the demand for industrial metals such as iron and copper, among others.
Furthermore, unlike some agricultural goods and crude oil that require custom storage facilities, metals can be stored easily, which makes their prices more sensitive to changes in market expectations and rates of interest. For instance, a decrease in interest rates diminishes the cost of carry, which is inclusive of insurance and storage costs among other expenses, thus supporting commodity prices.
Analysts expect that metal prices will peak in the coming months, with future markets proposing a surge of 50% in the prices of industrial metals this year. However, in 2022, the prices are projected to decline by 4%.
Despite these forecasts, prices are expected to remain high and may increase even further, particularly if the demand for energy transition grows. On the other hand, prices may decline considerably if government actions and legislative approvals needed for the energy infrastructure and transition programs don’t eventuate as expected.
This expected rise in metals prices is likely to be a welcome shot in the arm of companies such as First Energy Metals Ltd. (CSE: FE) (OTCQB: FEMFF) because it would help these companies ramp up their exploration, development and even extraction activities.
NOTE TO INVESTORS: The latest news and updates relating to First Energy Metals Ltd. (CSE: FE) (OTCQB: FEMFF) are available in the company’s newsroom at https://ibn.fm/FEMFF
NOTE TO INVESTORS: The latest news and updates relating to Net Element (NASDAQ: NETE) are available in the company’s newsroom at http://ibn.fm/NETE
Please see full terms of use and disclaimers on the MiningNewsWire website applicable to all content provided by MNW, wherever published or re-published: https://www.MiningNewsWire.com/Disclaimer
The prices of various metals, including industrial metals, have been rising, driven by economies around the world reopening. Thus far, metal prices have surged by 72%, in comparison with the levels observed prior to the pandemic.
Earlier in May, prices hit a nine-year high, with the increase mainly influencing industrial metals such as nickel, iron ore and copper, which were up by 41%, 116% and 89%, respectively. Apart from this, the prices of some energy and agricultural commodities have also risen but at a steadier rate.
So why have the prices of metals surged in comparison to other commodities?
Well for starters, this may be due to a few factors on the supply side. The onset of the coronavirus pandemic disrupted most mining operations, which resulted in temporary shutdowns. The pandemic also imposed quarantine restrictions, which caused issues with staffing shipping crews and congestion in major ports, which significantly increased freight rates for bulk material transportation, adding to the cost of different metals.
In addition to this, the ballooning expectations on infrastructure programs and the rate of transition to a green economy also gave the prices of metals an additional boost, as the green economy would grow the metal intensity of the international economy. The International Energy Agency notes that the consumption of metals such as nickel, cobalt and graphite will increase by about 25 times as the rapid energy transition occurs, with the consumption of lithium for renewables and electric cars also expected to rise significantly. Additionally, infrastructure programs in the United States and the European Union will also increase the demand for industrial metals such as iron and copper, among others.
Furthermore, unlike some agricultural goods and crude oil that require custom storage facilities, metals can be stored easily, which makes their prices more sensitive to changes in market expectations and rates of interest. For instance, a decrease in interest rates diminishes the cost of carry, which is inclusive of insurance and storage costs among other expenses, thus supporting commodity prices.
Analysts expect that metal prices will peak in the coming months, with future markets proposing a surge of 50% in the prices of industrial metals this year. However, in 2022, the prices are projected to decline by 4%.
Despite these forecasts, prices are expected to remain high and may increase even further, particularly if the demand for energy transition grows. On the other hand, prices may decline considerably if government actions and legislative approvals needed for the energy infrastructure and transition programs don’t eventuate as expected.
This expected rise in metals prices is likely to be a welcome shot in the arm of companies such as First Energy Metals Ltd. (CSE: FE) (OTCQB: FEMFF) because it would help these companies ramp up their exploration, development and even extraction activities.
NOTE TO INVESTORS: The latest news and updates relating to First Energy Metals Ltd. (CSE: FE) (OTCQB: FEMFF) are available in the company’s newsroom at https://ibn.fm/FEMFF
NOTE TO INVESTORS: The latest news and updates relating to Net Element (NASDAQ: NETE) are available in the company’s newsroom at http://ibn.fm/NETE
Please see full terms of use and disclaimers on the MiningNewsWire website applicable to all content provided by MNW, wherever published or re-published: https://www.MiningNewsWire.com/Disclaimer
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