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The gradual slide in the metal price, however, continued this week, as a stronger US dollar made greenback-priced metals more expensive to holders of other currencies.
A new report by Roskill says the industry opinion is strongly – and evenly – divided between bearish and bullish views.
“Bears will point out that this year’s price spike occurred during Lunar New Year when Chinese traders were away, indicating that the surge was largely speculatively driven, without much fundamental support, and during the quiet season for consumption in the rest of the world,” said the market researcher.
Roskill said that, for bears, prices over $9,000/t may represent the ‘last hurrah’ before recent production disruptions and temporary dislocations to international trade (in delayed shipments from Chile and Peru, and in containerised scrap awaiting customs clearance at Chinese ports) are overcome.
“Increased refined production will come through in H2 2021, returning the market to equilibrium, with a downwards correction in prices the certain result,” Roskill said.
Other side of the coin
The problem is the body of evidence supporting the bulls is equally convincing.
“The starting point are the total visible inventories – or buffer stocks – available to meet short term fluctuations in refined supply and demand. At the end of February, the combined exchange inventories of LME + Comex + SHFE + INE plus those in Chinese bonded warehouses stood at 710kt, sufficient to meet only 1.5 weeks of global refined consumption,” said Roskill.
“Although these have risen 149kt since the end of January, due to the Chinese New Year, they are still 145kt below the 855kt seen in February 2020 (during the Chinese pandemic when demand was suppressed)”
According to the market researcher, the bulls ‘rightly argue that with the Mainland’s fabricators reigniting their furnaces from maintenance shutdowns demand will pick up sharply’.
“Given that Chinese industrial production surged 35% yoy in Jan-Feb 2021, with multiple end use market indicators glowing red hot, they point out that any meaningful disruption to supply will quickly create physical shortages that would push cathode premiums and prices sharply higher.”