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2022 has been a difficult year for base metals with copper losing 35% of its value from its high in March to its low in mid-July.


Aluminum has followed a similar pattern, posting a 31% loss in the same time frame. Several factors appear to have driven the price drop. Rapidly rising interest rates combined with higher energy prices are fueling concerns of global demand destruction. There are also continued concerns over China as their government mulls the easing of strict COVID-19 mitigation strategies.

According to Guy Wolf, Global Head of Market Analytics for Marex “the demand for copper has gone down, but the supply is still very tight and in the last week or so with murmurings of the end of China’s COVID zero policy, there was a $1,000 per ton increase in copper price in just two days. That’s the level of sensitivity (to China) that we have”. 

Andy Massey, Vice President of Procurement for Bonnell Aluminum, added that “China is the largest producer and the largest consumer of aluminum so anytime anything takes place in China we all listen.”

Jin Chang, Global Head of Metals for CME Group pointed out that “a lot of the aluminum that’s produced in China tends to be self-consumed, so when it comes to export markets, the U.S. plays a key role because it is a net deficit country with respect to aluminum.”   

The three experts made their comments at the recent OpenMarkets Exchange of Ideas panel covering the volatile year for global metals markets.

Metals in the Energy Transition

What seems to be front and center in copper and aluminum markets is the global move toward green energy and electrification with many government bodies setting aggressive goals for the transition away from fossil fuels.  Both metals are key in this process with copper relied upon for its ability to conduct electricity and aluminum prized for its strength to weight ratio.

As standards for gas mileage have increased so has reliance on aluminum, and this trend could increase exponentially with the movement to electric vehicles. Massey made the point that “previously our industry was excited to get 300 pounds of aluminum per car and now some of the EV cars get as much as 500-800 pounds of aluminum. So it’s a huge leap for us.” Copper’s increased usage in EV cars is similar but at a smaller scale.

A standard combustion engine vehicle uses 50 pounds of copper compared to an EV using 183 pounds. S&P Global Research predicts that by 2035 the U.S. will be at a 10 million metric ton per year deficit in copper, up from a current 4 million metric ton deficit, provided the move towards electrification continues on its current trajectory.

Wolf seemed to have doubts and expressed that “forecasts tend to be wrong particularly in commodities and that we should never underestimate human ingenuity. If the price of copper rises too high, we will find new sources or look to the recycle market,” with the latter having “a much lower carbon footprint.” Despite many similarities in copper and aluminum markets there are some differences. 

Jorge Vazquez, Founder and Managing Director at Harbor Aluminum pointed out that “the current slowdown in demand is generating surplus aluminum which is becoming more obvious as time passes and that poses financial risks to the entire aluminum supply chain,” But Vazquez also added that “the geopolitical situation in Ukraine could become a bigger problem and although I believe it’s currently getting less uncertain, you never know.” 

The uncertainty and volatility in metals has drawn new participants into CME Group futures markets. The CME aluminum contract has exploded in volume, up 350% from Q1 to Q3 2022. According to Chang, participants expressed a need to have “a viable alternative market for the base metals industry, and we are seeing continued improvement in liquidity so far and we are also seeing development in our battery metals space with volume and open interest tripling in lithium and cobalt contracts.” 

As we move forward the one thing most traders seem to agree upon is that the many moving parts in the metals market could cause continued volatility well into 2023. 



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