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Governments and regulators may need to act to avoid possible critical shortages in the metals markets, global trader Trafigura’s CEO Jeremy Weir said.
The situation regarding supplies “at the moment doesn’t look good,” Weir told delegates at the FT Global Commodities Summit in Lausanne.
Tightness could be alleviated by governments offering fiscal stimulus or shortening mine permitting periods without lowering (mineral quality) standards, he said.
“It’s across the board we have a problem here,” Weir said, referring to current pressures on supplies of various metals, particularly those used in battery manufacture.
Nickel is a case in point, where a short squeeze sent prices skyrocketing 250% on the London Metal Exchange in just three days before the exchange stepped in March 8 to halt trading and eventually bring the market back to orderly trading, Weir said at the in-person and virtual event. Deliverable nickel represents just 30% of this market, he noted.
The LME cash nickel price returned to what market sources considered “normal” trading levels March 21, settling at $31,580/mt, down 14.91% on the previous day’s close, just two weeks after it had surged to over $100,000/mt on speculative activity.
Ongoing deficits
Prices for most metals and steel have risen in recent weeks as the Ukraine crisis has curbed supplies of some products and complicated delivery logistics. This follows a year of persistent low inventories for key metals, with global copper, aluminum, nickel and zinc markets all registering a deficit in 2021, according to data released last month by the World Bureau of Metals Statistics.
Northwest European steel hot-rolled coil prices March 21 remained at a record Eur1,460/mt ($1,611/mt) ex-works Ruhr, according to S&P Global Commodity Insights. Mills continue to pass on upstream costs into what sources describe as a “panicked market”. The price of the product used has risen 51% in the past month.
Metals demand has risen globally in recent years to meet energy transition goals, while few new mine projects have been brought on stream due to more than a decade of low investment.
“The metals intensity for the energy transition is very significant,” Weir said. “An electric vehicle needs four to six times as much copper as ICE vehicles, while solar and offshore wind farms need six times as much metal as thermal power generation. Also, for construction, we will need significantly greater amounts of zinc, aluminum, and steel for the energy transition.”
China dominates the processing of battery metals, with around 80% of nickel and cobalt mined for this purpose going into China to produce battery precursor materials “but the front-end supply is not there,” Weir continued.
In copper, where LME prices are near historic highs, settling at $10,173/mt March 21, there could be some displacement into use of aluminum for high-voltage transmission, according to Weir. Nonetheless, the Chinese are “pretty clear” they won’t build more electro-intensive aluminum smelting capacity due to China’s desire to reduce its carbon footprint, and this may put a cap on aluminum production, he said.
Zinc supplies are also very tight due to the highly energy-intensive nature of zinc production, he said. “There are significant deficits in the zinc smelting area on a forward-looking basis while demand is still rising. China is also unlikely to build new zinc smelters… and Trafigura has reduced its own zinc production in Europe by around 30%: with prices in excess of Eur200/MWh it doesn’t make sense — it’s severely lossmaking,” he said.
There has been a resources grab by some countries, wishing to secure strategic minerals supplies, Weir added.
Energy transition
Despite the potential squeeze on metals supplies, and the probability that more coal will need to be burned in the short term in a move to replace Russian gas, Trafigura believes the energy transition should actually be accelerated in Europe by the current Russia-Ukraine crisis.
“The current energy mix in Europe may be expeditable and should speed it up… although we’ll see some stresses on the system,” Weir said. Trafigura is proceeding with investments in mining, renewables and hydrogen, he said.