Iron ore at $141.53 per ton... Highest in 7 years
Possibility of supply reduction could push above $150
Massive liquidity also flowing into commodity markets
[Asia Economy Reporter Jeong Hyunjin] Prices of industrial metals such as iron ore and copper are soaring. Expectations for economic recovery following the supply of COVID-19 vaccines, combined with massive liquidity flooding the market, are driving funds into the commodity market, leading to forecasts that previous record highs will be surpassed.
According to the Wall Street Journal (WSJ) and others on the 6th (local time), iron ore futures prices on the Singapore Exchange (SGX) reached $141.53 per ton on the 4th, the highest in over seven years since 2013. This marks an increase of nearly 50% compared to the beginning of the year. Copper futures prices on the U.S. Commodity Exchange (COMEX) also surpassed $3.52 per pound, reaching an eight-year high. Prices of aluminum and zinc have also risen more than 10% compared to the start of the year.
Iron ore and copper are representative industrial metals mainly used in manufacturing and construction. Copper, in particular, is sensitive to economic conditions and serves as a leading indicator, earning it the nickname "Dr. Copper." This reflects investors' expectations that the real economy will revive.
The recent strength in metal prices is directly influenced by supply and demand instability. As clear signs of economic recovery emerge in China, the largest consumer, demand for steel and copper is increasing. China's manufacturing Purchasing Managers' Index (PMI) was recorded at 52.1 in November, the highest in over three years since September 2017. WSJ explained, "Before COVID-19, concerns over the China-U.S. trade war led by former U.S. President Donald Trump reduced demand for raw materials in China. Now, with the U.S. administration change, uncertainties have somewhat eased."
On the other hand, supply is decreasing due to production cuts by manufacturers. Brazil's Vale, the world's largest iron ore producer, recently projected production for next year at 315 million to 335 million tons in guidance sent to investors. This is below the market consensus of 353 million tons. Market experts predict that if heavy rains occur in Brazil and Australia, where iron ore mines are concentrated, prices could rise further. Some experts foresee iron ore prices soon exceeding $150 per ton.
As the likelihood of price increases grows, capital concentration in the commodity market is intensifying. Dairus Tabatabai, portfolio manager in the metals trading division at Aerion Investment Management, said, "Two major issues (vaccine development and Joe Biden's U.S. presidential election victory) have been resolved. Now, we are all seeing a huge influx of money into the economy."
Commodity prices are expected to continue rising for the time being. Goldman Sachs stated in a report on the 2nd, "The copper price bull market has officially begun. This is not an irrational deviation but the first phase of a structural bull market," and predicted that new record highs will be broken soon.
As commodity prices rise, mining companies' stock prices are also on the upswing. Freeport-McMoRan, the world's largest mining company, saw its stock price increase by 85.9% compared to the beginning of the year as of the 3rd. U.S. aluminum manufacturer Century Aluminum and U.S. copper company Southern Copper also saw their stock prices rise by 48.9% and 42%, respectively.
Jay Sandler, president of Imperial Zinc, a zinc product specialist manufacturer, explained, "The outlook during the lockdown at the beginning of the year was bleak, but now employees are working overtime to meet demand from automobile manufacturers and others." Richard Adkerson, CEO of Freeport-McMoRan, stated that the company will accelerate plans including debt reduction, dividend expansion, and investment in mine development.
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