Material Matters: 2021 Demand, Nickel & Copper

Commodities | Jan 27 2021

Citi expects markets to shift focus towards world ex-China demand in 2021 while Morgan Stanley highlights risks to supply in base metals including zinc, copper and nickel.

-Rising construction-led demand in developed economies
-Nickel: It all boils down to demand and supply
-Copper: Labour-led disruptions pose a key supply risk

By Angelique Thakur

Rising commodities demand ex-China

China has shown a remarkable recovery in demand for commodities in a covid-afflicted world. But Chinas not our story today. Today we turn the spotlight on all that is ex-China.

A rise in ex-China led demand will be the centre of attention in 2021, believes Citi, especially since demand-supply dynamics for commodities (like copper) hingeon the degree and speed of this ex-China demand rise.

Metals consumption in developed nations was almost back to pre-covid levels by the December quarter, highlights the broker, led by changing consumer preferences that offset the impact of (covid-led) lower mobility on consumption patterns.

A case in point is Citis ex-China copper consumption tracker that was up 1.2% year on year in November with early December looking firm as well. This is a far cry from the lows of -27% witnessed in April 2020.

The changing consumer preferences mentioned above refer to a rise in metals consumptionin areas such as construction, consumer appliances, and automotive sectors in developed markets, that are seeing outright growth with the pandemic leading to higher demand for new homes and home renovations.

With money supplyincreasing in the US, UK and European nations by more than $2.5tr in 2020, Citi suspects there is scope for this demand to continue.

The housing boom of the US will lead to home prices appreciating by circa 5% nationally, forecasts the broker, which will further act as a tailwind for the demand for construction-led commodities.

Nickel: Supply disruption prompts bullish views

Nickel, it would seem, is in for a double bonanza.

A report by Macquarie has the broker foreseeinga brighter future for the commodity, backed by a combination of stainless-steel demand in the near term and higher demand for battery technologies over the medium term.

Demand for nickel mostly comes from the production of stainless steel with the rest from recovery in China and ex-China demand. Combined, these factors have led to a surge in nickel prices in late 2020 and early 2021.

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