Material Matters: Iron Ore, Copper & Nickel

Commodities | Aug 04 2021

A glance through the latest expert views and predictions about commodities: iron ore; copper; nickel; lithium; and contractors

-Iron ore prices are dropping as market tightness eases
-Manufacturing and mobility underpinning copper prices
-Nickel demand still elevated amid mine disruptions
-Elevated EV battery demand keeps lithium miners on a roll
-Resources strength and broader construction supporting contractors


By Eva Brocklehurst

Iron Ore

Morgan Stanley believes market tightness that built in iron ore during the first half of 2021 will fully unwind in the second half. The iron ore price is dropping, reaching US$181/t from a high of US$222/t in early July.

Further pressure to the downside is expected as market tightness was driven by seasonal supply disruptions. Stronger second half supply and slowing steel production in China are expected to return the seaborne market to a balance more akin to a year ago, the broker asserts.

Yet the price is not expected to fall as far as the US$134/t that was averaged in the June quarter of 2020. While China's steel production is slowing the impact on iron ore demand is likely to be a little protected as lower-margin scrap electric arc furnace production is cutting back output more so than blast furnaces.

China's government is also ramping up action to cool the property market. The broker's China materials analysts are expecting -21mt of reductions to steel output in the second half.

Morgan Stanley concludes that gradual policy changes to create disincentives for steel exports are more likely to eventuate than a sharp curb to production. Moreover, beyond China, the recovery in seaborne demand from Europe, Japan and South Korea has mostly run its course.


Citi forecasts another 10-12% rally in copper prices, to US$5/lb over the next three months. Copper's balance is tightening and speculative positioning is starting to kick off. All of the bearish factors are now largely priced in or in the process of unwinding, the broker observes, such as speculative and state-sanctioned Chinese selling and de-stocking of supply chains.

Meanwhile, global manufacturing and mobility remain robust, which underpins growth-exposed commodity prices that are trading at elevated levels. US CME prices have been driven up relative to UK LME prices, reflecting fundamental tightness.

Citi expects US imports will rise by around 80-90,000t/month. In China, refined copper demand picked up in July as de-stocking was reduced and there was a moderation in scrap supply. End-use consumption in China is expected to remain firm on improving export orders and state grid tenders.


Demand for nickel is exceptionally strong, Morgan Stanley notes, as output of stainless steel rises globally to meet demand from the construction, manufacturing and oil & gas sectors. Stainless steel prices are at 14-year highs, underpinned by container shortages and higher raw material costs.

Even as chip shortages emerge, electric vehicle (EV) battery demand is also elevated and this will help to lift the nickel price to the mid US$19,000/t region. While a recovery in supply could ease some of this tightness into the second half, the broker notes fresh disruptions and the strength of demand looks set to keep prices higher for longer.

Norilsk is operating at 85% of normal levels and has guided to a probable full-year loss of -30,000t of nickel. There are also disruptions to Vale's Sudbury mine in Canada which has tightened the US market.

Further, protests in New Caledonia have meant the suspension of Glencore's operation and bad weather is disrupting shipments from the Philippines to China. Indonesia's lockdown has extended and potentially affected labour supply for expansions.

Also, the Indonesian government policy is restricting expansion of capacity to produce intermediate products if there is no investment in value-added products. As a result nickel pig iron prices have gained 10% since July 1 and nickel sulphate is up 7%.

Ultimately, any drop in China's stainless steel output is likely to be balanced by a rise in Indonesian production but, as Morgan Stanley points out, in the meantime the outlook is bullish for nickel. The broker expects the market will remain tight through the second half and there is upside risk to its forecast of US$16,700/t.


in assessing the latest updates on developments for lithium miners, Macquarie highlights the first sale on the Pilbara Minerals ((PLS)) BMX platform, which delivered 10,000dmt at 5.5% spodumene concentrate for US$1250/dmt.

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