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Metals subject to high volatility

2023-05-22T15:58:53.984Z

Highlights: Since the invasion of Ukraine, "a four-stroke waltz has been played out for many raw materials," observes Yves Jégourel. For 2023, CyclOpe forecasts declines, measured, for most commodities. Western manufacturers should focus on managing the intrinsic volatility of metal prices, not just their long-term appreciation, the authors of the Cyclops 2023 report say. The way in which Europe secures its supplies of critical metals is essential, they say.


The volatility of metal prices is expected to continue in the coming months.


Since the invasion of Ukraine, "a four-stroke waltz has been played out for many raw materials, tossed between geopolitical and health crises," observes Yves Jégourel, co-director of the CyclOpe report and a specialist in raw materials. The war and its beginnings caused anxiety and sent base metal prices soaring until early March."

Then the market understood that the West would not impose sanctions on Moscow on raw materials, which, added to doubts about global growth, the rising dollar and inflation, led prices to fall until October. "Then hope returned, between the perception of a moderation in rate hikes and the reopening of China. In February, the trend was reversed: the markets started to fall again, "summarizes the economist.

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For many commodities, this confusing year 2022 ended "at levels equivalent to, or even lower, than those of January," points out the Cyclops 2023 edition. The prize for the rise is unsurprisingly the natural gas that Europe, largely deprived of exports from Russia, until then its major supplier, has fetched at a high price in the United States in the form of transportable liquefied natural gas (LNG). In the wake of the energy crisis linked to the invasion of Ukraine, electricity and coal have surged. Lithium, an essential product for the green economy, especially electric vehicles, saw its price double over the year.

Confronting China

The trajectory of metal prices is fairly homogeneous, there is a lot of price instability and volatility, and this should continue in the coming months, anticipates Yves Jégourel. For 2023, CyclOpe forecasts declines, measured, for most commodities. Especially since, focused on geopolitical risks, markets do not take into account the long-term prospects of critical materials while, according to the International Energy Agency, demand for copper, for example, should be multiplied by 2 or 3 by 2040 and that of lithium by 40. Lithium should remain, barring an unlikely breakthrough innovation, a key non-substitutable component of rechargeable batteries for the next twenty years. The year 2022 has also been conducive to investment: the global budget dedicated to the exploration of this mineral resource has almost doubled between 2021 and 2022, from $ 250 million to $ 470 million, according to the agency S&P Global.

In this highly uncertain context, the way in which Europe secures its supplies of critical metals is essential. Many projects have been launched, including the European Critical Raw Materials Act by the European Commission in March 2023, the authors of CyclOpe point out. But, "with these very unstable global markets, flexible policies are needed," they insist. If only to confront China. The world's largest producer of many critical minerals and metals will not let its competitors develop strategies without reacting. "Beijing will probably seek to lower prices in the short term and then raise them," predicts Yves Jégourel. However, "the temporary and artificial fall in prices can penalize Western operators as much as their increase. It can undermine the business models of US or European mining and recycling activities." For this reason, Western manufacturers should focus on managing the intrinsic volatility of metal prices, not just their long-term appreciation, CyclOpe recommends.

Source: lefigaro

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