In the intricate web of global economics, industrial metals stand as pivotal indicators of economic health, reflecting the pulse of industrial activity worldwide. Amidst robust demand driven by economic growth, infrastructure projects, and the green energy transition, these metals have surged in price in early 2024. Notably, copper, a cornerstone of numerous industries, has witnessed a meteoric rise in demand, accentuated by supply constraints and heightened investor interest as a hedge against inflation. Against this backdrop, major industry players navigate financial dynamics while grappling with impending industry takeovers. However, challenges loom, including supply chain disruptions and escalating costs, driving a shift towards sustainability and technological innovation. As global markets navigate these dynamics, the trajectory of industrial metals offers crucial insights into the evolving economic landscape.
Industrial Metals on the Upward Swing
Commodities have historically played a crucial role as fundamental economic indicators, offering valuable insights into wider market dynamics and overall economic circumstances. Within this sphere, the industrial metal market stands as a critical barometer of global economic health, reflecting the pulse of industrial activity and infrastructure development worldwide. Demand in this market is propelled by robust global economic growth, ambitious infrastructure projects, and the accelerating transition to green energy, exemplified by the surging production of electric vehicles. Conversely, supply-side factors such as mining output, production costs, and geopolitical risks exert significant influence, shaping the availability of crucial metals like copper, aluminium, and zinc. Against this backdrop of supply and demand forces, the pricing outlook assumes a pivotal role in shaping macroeconomic trajectories and providing crucial insights over industrial advancements.
In the first quarter of 2024, industrial metals have exhibited robust performance, outpacing equities, buoyed by indications of heightened demand from Chinese manufacturers and apprehension regarding constrained global supply. The Bloomberg Industrial Metals (BCOMIN) index has demonstrated an 8.9% increase by the third week of April compared to its January 2024 opening value. By contrast, during the same period, the S&P has recorded a gain of 5.65%.
The prevailing sentiment in economic forecasts leans towards, although modest, upward revisions in growth prospects, as indicated by the recent releases of the IMF’s “World Economic Outlook Growth Projections” reports. The April compilation signals an anticipation of global output growth for 2024 at 3.2%, compared to the 3.1% forecasted in January. Likewise, projections for Emerging Markets and Developing Economies during the same period have been adjusted upwards from 4.1% to 4.2%. Notably, India is anticipated to be a significant driver of this growth, with a projected real GDP growth of 6.8% for the year. Similarly, the China Manufacturing Purchasing Managers Index (PMI), offering a monthly preview of economic activity in the Chinese manufacturing sector, has experienced a resurgence, topping levels observed last September. Similarly, in the United States, the Institute for Supply Management reported that its index monitoring US factory activity had surged into expansionary territory in March, the first time since September 2022.
Compounding this force, on the supply side, the mining industry has been grappling with, and is anticipated to persist in, confronting constraints on supplies due to disruptions. Notably, these disruptions encompass the government-ordered shutdown of Cobra Panama, one of the world’s largest copper mines, owned by Canada’s First Quantum, and accounting for approximately 1.7% of the global refined copper supply, with expectations of its idleness lasting until mid-2025. Further exacerbating this situation, guidance for 2024 indicates lower-than-expected production from a multitude of other major producers.
Consequently, certain investors have sought refuge in commodities as a safeguard against lingering inflationary pressures, which continue to surpass the targets set by numerous central banks. Additionally, several asset managers have bolstered their commodity allocations, partly as a defence against enduring consumer price escalation.
Commodities have historically played a crucial role as fundamental economic indicators, offering valuable insights into wider market dynamics and overall economic circumstances. Within this sphere, the industrial metal market stands as a critical barometer of global economic health, reflecting the pulse of industrial activity and infrastructure development worldwide. Demand in this market is propelled by robust global economic growth, ambitious infrastructure projects, and the accelerating transition to green energy, exemplified by the surging production of electric vehicles. Conversely, supply-side factors such as mining output, production costs, and geopolitical risks exert significant influence, shaping the availability of crucial metals like copper, aluminium, and zinc. Against this backdrop of supply and demand forces, the pricing outlook assumes a pivotal role in shaping macroeconomic trajectories and providing crucial insights over industrial advancements.
In the first quarter of 2024, industrial metals have exhibited robust performance, outpacing equities, buoyed by indications of heightened demand from Chinese manufacturers and apprehension regarding constrained global supply. The Bloomberg Industrial Metals (BCOMIN) index has demonstrated an 8.9% increase by the third week of April compared to its January 2024 opening value. By contrast, during the same period, the S&P has recorded a gain of 5.65%.
The prevailing sentiment in economic forecasts leans towards, although modest, upward revisions in growth prospects, as indicated by the recent releases of the IMF’s “World Economic Outlook Growth Projections” reports. The April compilation signals an anticipation of global output growth for 2024 at 3.2%, compared to the 3.1% forecasted in January. Likewise, projections for Emerging Markets and Developing Economies during the same period have been adjusted upwards from 4.1% to 4.2%. Notably, India is anticipated to be a significant driver of this growth, with a projected real GDP growth of 6.8% for the year. Similarly, the China Manufacturing Purchasing Managers Index (PMI), offering a monthly preview of economic activity in the Chinese manufacturing sector, has experienced a resurgence, topping levels observed last September. Similarly, in the United States, the Institute for Supply Management reported that its index monitoring US factory activity had surged into expansionary territory in March, the first time since September 2022.
Compounding this force, on the supply side, the mining industry has been grappling with, and is anticipated to persist in, confronting constraints on supplies due to disruptions. Notably, these disruptions encompass the government-ordered shutdown of Cobra Panama, one of the world’s largest copper mines, owned by Canada’s First Quantum, and accounting for approximately 1.7% of the global refined copper supply, with expectations of its idleness lasting until mid-2025. Further exacerbating this situation, guidance for 2024 indicates lower-than-expected production from a multitude of other major producers.
Consequently, certain investors have sought refuge in commodities as a safeguard against lingering inflationary pressures, which continue to surpass the targets set by numerous central banks. Additionally, several asset managers have bolstered their commodity allocations, partly as a defence against enduring consumer price escalation.
Copper’s Meteoric Rise
Within the spectrum of commodities, copper possesses notable significance. Copper is extensively utilized in diverse and leading industries, such as manufacturing (32% of copper global use), construction (28%), electrical infrastructures (16%), transportation (12%), tech and green transition (12%), rendering it a reliable metric for assessing industrial well-being and economic vitality: as a matter of fact, demand for copper is very cyclical, with spot prices historically benefitting of increases in global GDP. For this reason, in this chapter we will delve in analysing copper demand-supply outlook both qualitatively and quantitatively, framing it in broader macroeconomic considerations and proposing our base-view scenario for potential rises in the price of this commodity.
As of January 2024, the global copper mining industry showed a robust recovery from the previous year's constraints, observable in the table below, witnessing an overall production increase of approximately 2.5%, mainly led by a sharp surge in DRC's production (+9% YoY), Indonesia’s (+27% YoY), and the US (+6% YoY). Considering refined copper instead, world production grew by 5%, largely credited to China and the DRC (which together account for about 52% of the world's refined copper production), with China's refined production increasing by 10% YoY, while the DRC's by 11%. By the other hand, world apparent refined copper usage grew by 6%, driven by a 12% increase in Chinese demand (mainly because of increased confidence of Chinese manufacturers, and the restock of inventories), despite a slight 0.1% drop in demand from the rest of the world.
Within the spectrum of commodities, copper possesses notable significance. Copper is extensively utilized in diverse and leading industries, such as manufacturing (32% of copper global use), construction (28%), electrical infrastructures (16%), transportation (12%), tech and green transition (12%), rendering it a reliable metric for assessing industrial well-being and economic vitality: as a matter of fact, demand for copper is very cyclical, with spot prices historically benefitting of increases in global GDP. For this reason, in this chapter we will delve in analysing copper demand-supply outlook both qualitatively and quantitatively, framing it in broader macroeconomic considerations and proposing our base-view scenario for potential rises in the price of this commodity.
As of January 2024, the global copper mining industry showed a robust recovery from the previous year's constraints, observable in the table below, witnessing an overall production increase of approximately 2.5%, mainly led by a sharp surge in DRC's production (+9% YoY), Indonesia’s (+27% YoY), and the US (+6% YoY). Considering refined copper instead, world production grew by 5%, largely credited to China and the DRC (which together account for about 52% of the world's refined copper production), with China's refined production increasing by 10% YoY, while the DRC's by 11%. By the other hand, world apparent refined copper usage grew by 6%, driven by a 12% increase in Chinese demand (mainly because of increased confidence of Chinese manufacturers, and the restock of inventories), despite a slight 0.1% drop in demand from the rest of the world.
World Refined Copper Usage and Supply Trends
(thousand metric tonnes of copper)
(thousand metric tonnes of copper)
Source: ICSG, press-release, monthly report
Looking at these figures, and taking a forward perspective, the supply-demand outlook suggests an increasing under-supply of the commodity, with the demand for copper expected to increase to 36.6 million tons by 2031, surpassing a projected supply of 30.1 million tons. We will elaborate further on the underlying reasons and consequent opportunities in the next paragraphs, starting by observing the current expectations of market participants on the evolution of copper prices.
Copper COT Report for Managed Money (Futures & Options)
Source: CME, COT Report
One of the instruments more utilized by traders to have a grasp of the general sentiment in the market is the Commitment of Traders (COT) Report, which provides a snapshot of how different market participants are positioned in the futures and options markets in a time series. In the chart above, we observe an increase in net long positions by Managed Money in April 2024, indicating a bullish sentiment among various money managers all over the world (these participants are informed traders, and their positioning can offer valuable signals about future price movements). This observation is indeed consistent with historical patterns where substantial changes in market participant positions often serve as leading indicators for subsequent fluctuations in the underlying asset's price level. For example, the accumulation of long positions in derivative contracts (options and futures) might suggest that market participants are on average anticipating higher copper prices in the future.
Hedge-Copper & Upside-Copper
Taking a short-term perspective, industrial commodities such as copper have the potential to both outperform and act as a hedge for eventual tail risks. As a matter of fact, generally (and historically) speaking, commodities - and in particular copper - do perform well in three particular ecosystem: first, in inflationary environments, with unexpected spikes in inflation due to sudden bursts in demand and/or supply bottlenecks; second, in reflationary environments, where economies are rebounding from a slowdown and corporations restock depleted inventories, contributing to a steadily rising demand for commodities; third, in geopolitically volatile environments, where the rise of tensions in copper-rich countries lead market participants to increasingly price in tail risks (of returning to problematic inflation levels) and pay premium prices to secure supply.
To translate this into the real world environment, we see China (a persistent laggard since the pandemic and the 1st consumer of copper in the world), managing to stimulate forecast-beating first-quarter growth of 5.3%, thus fuelling expectations for a revived growth in the demand for copper (allegedly less tied to the infrastructure boom experienced in the previous years, rather more connected to the mounting focus and importance of the country in the EV market): by the other hand, on the supply side, we are witnessing widespread failures in setting up new mines (mainly due to environmental concerns and lack of government approval), and short-term supply disruptions causing structural deficit, including the drought and power shortages in Zambia, and China’s drop in refined output because of falling processing fees. Lastly, the turn in manufacturing adds a cyclical impetus, and this commodity has tended to benefit the most from non-recessionary rate cuts.
All these considerations justify a supportive backdrop that favours industrial metals like copper: moreover, taking a long-term perspective, structural demand for copper and other industrial metals is already strong, because of its critical role in the world’s agenda: from the decarbonization of the economy and the steadily increasing investments in green technologies (EVs, wind turbines, power grids…), to the ongoing build-out of 5G and datacentres (thanks to the rise of AI and data-intensive technologies), copper’s importance in the years to come is still unveiling and this, combined with an overall lack of ongoing mine projects all over the world, will allegedly stress the supply-demand outlook in favour of an upside potential.
Taking a short-term perspective, industrial commodities such as copper have the potential to both outperform and act as a hedge for eventual tail risks. As a matter of fact, generally (and historically) speaking, commodities - and in particular copper - do perform well in three particular ecosystem: first, in inflationary environments, with unexpected spikes in inflation due to sudden bursts in demand and/or supply bottlenecks; second, in reflationary environments, where economies are rebounding from a slowdown and corporations restock depleted inventories, contributing to a steadily rising demand for commodities; third, in geopolitically volatile environments, where the rise of tensions in copper-rich countries lead market participants to increasingly price in tail risks (of returning to problematic inflation levels) and pay premium prices to secure supply.
To translate this into the real world environment, we see China (a persistent laggard since the pandemic and the 1st consumer of copper in the world), managing to stimulate forecast-beating first-quarter growth of 5.3%, thus fuelling expectations for a revived growth in the demand for copper (allegedly less tied to the infrastructure boom experienced in the previous years, rather more connected to the mounting focus and importance of the country in the EV market): by the other hand, on the supply side, we are witnessing widespread failures in setting up new mines (mainly due to environmental concerns and lack of government approval), and short-term supply disruptions causing structural deficit, including the drought and power shortages in Zambia, and China’s drop in refined output because of falling processing fees. Lastly, the turn in manufacturing adds a cyclical impetus, and this commodity has tended to benefit the most from non-recessionary rate cuts.
All these considerations justify a supportive backdrop that favours industrial metals like copper: moreover, taking a long-term perspective, structural demand for copper and other industrial metals is already strong, because of its critical role in the world’s agenda: from the decarbonization of the economy and the steadily increasing investments in green technologies (EVs, wind turbines, power grids…), to the ongoing build-out of 5G and datacentres (thanks to the rise of AI and data-intensive technologies), copper’s importance in the years to come is still unveiling and this, combined with an overall lack of ongoing mine projects all over the world, will allegedly stress the supply-demand outlook in favour of an upside potential.
Financial Factors and Impending Industry Takeover
In this analysis, we examine the financial and operational characteristics of six prominent entities within the global resources and mining sector. These large-scale companies are pivotal players in the extraction, production, and distribution of metals, vital for a multitude of industries worldwide.
Interestingly, the recent surge in copper demand has ignited conversations surrounding a proposed acquisition between two significant industry players, poised to mark one of the most substantial transactions in this sector in recent year.
In this analysis, we examine the financial and operational characteristics of six prominent entities within the global resources and mining sector. These large-scale companies are pivotal players in the extraction, production, and distribution of metals, vital for a multitude of industries worldwide.
Interestingly, the recent surge in copper demand has ignited conversations surrounding a proposed acquisition between two significant industry players, poised to mark one of the most substantial transactions in this sector in recent year.
Source: FactSet
Source: FactSet
BHP Group is a global resources company, operating in more than 30 countries worldwide, with a diversified portfolio covering minerals, petroleum, and metals. Its business encompasses a wide range of commodities, with iron ore, copper, coal, and petroleum being the primary contributors to its revenue. The firm is one of the largest producers of iron ore globally, with significant operations in Australia and Brazil. It also has substantial copper assets, primarily located in Chile, the United States, and Peru. BHP is involved in both metallurgical coal and thermal coal production, with mines in Australia and Colombia. With a gross margin of 34.2%, BHP showcases efficient production processes, albeit slightly lower compared to some peers. Its EBITDA margin of 43.7% and EBIT margin of 34.2% reflect robust operational profitability and effective cost management. While its net margin of 13.2% is relatively lower compared to Fortescue, it still underscores BHP's ability to convert revenue into profits effectively. The market’s valuation appears in line with its competitors, with EV/sales ratio of 2.83x, 8.27x for EBIT, and 6.48x for EBITDA. It exhibits a relatively high P/E ratio of 19.90x, indicating that investors are willing to pay a premium for its earnings relative to its stock price.
BHP Group has recently unveiled plans for a £31 billion acquisition of Anglo American. If the deal comes to fruition, BHP would ascend to the pinnacle of the copper industry, surpassing its current third place ranking to become the world's largest copper producer, consolidating control over roughly 10% of global copper output. Central to this proposed acquisition are Anglo American's prized copper mines in Peru and Chile. BHP's strategic pivot towards acquiring Anglo American underscores a shift away from its traditional emphasis on iron ore, as Anglo American boasts a diversified portfolio spanning commodities such as platinum and diamonds, currently holding an 85% controlling stake in the De Beers Group. However, the proposed acquisition would also entail the spin-off of the Anglo American Platinum division, as well as the Kumba Iron Ore unit, both listed in South Africa. Market analysts closely monitoring developments anticipate that the share price necessary for the deal to materialize could exceed the current offer, suggesting potential for further negotiations. As of April 24th, the transaction is envisioned to take place as an all-stock takeover.
BHP Group has recently unveiled plans for a £31 billion acquisition of Anglo American. If the deal comes to fruition, BHP would ascend to the pinnacle of the copper industry, surpassing its current third place ranking to become the world's largest copper producer, consolidating control over roughly 10% of global copper output. Central to this proposed acquisition are Anglo American's prized copper mines in Peru and Chile. BHP's strategic pivot towards acquiring Anglo American underscores a shift away from its traditional emphasis on iron ore, as Anglo American boasts a diversified portfolio spanning commodities such as platinum and diamonds, currently holding an 85% controlling stake in the De Beers Group. However, the proposed acquisition would also entail the spin-off of the Anglo American Platinum division, as well as the Kumba Iron Ore unit, both listed in South Africa. Market analysts closely monitoring developments anticipate that the share price necessary for the deal to materialize could exceed the current offer, suggesting potential for further negotiations. As of April 24th, the transaction is envisioned to take place as an all-stock takeover.
Top 5 by Revenue in Iron Ore Mining
Source: FactSet
Rio Tinto (RIO-GB) is a leading international mining and metals company. It is a major producer of iron ore, with extensive operations in Australia's Pilbara region and in Canada, while its business of smelting and refining aluminium is located in countries such as Canada, Iceland, and Australia. The Australian company stands out with a strong gross margin of 29.6%, indicating solid production efficiency. Its EBITDA margin of 37.4% and EBIT margin of 25.8% further highlight its operational strength and effective cost management. Uniquely, net margin reaches 18.6%, one of the highest in the industry. Rio Tinto has a lower P/E ratio of 10.78x compared to BHP Group, while EV/sales and EV/EBITDA seem in line with the ones of the competitor mentioned above.
Source: FactSet
Fortescue Metals Group (FMG-AU) is primarily focused on the exploration, development, production, and processing of iron ore resources, with extensive mining activities in the Pilbara region of Western Australia. In this territory it owns and operates mines, rail infrastructure, and port facilities. It emerges as a frontrunner in profitability metrics, boasting exceptional performance across the board. With an outstanding gross margin of 56.1%, Fortescue is the leading company in terms of efficiency in production processes. Its EBITDA margin of 61.3% and EBIT margin of 51.6% reflect robust operational profitability and effective cost control measures.
Source: FactSet
Fortescue has a moderate P/E ratio of 8.40x, indicating a balanced valuation of its earnings relative to its stock price. While the EV/sales ratio of the company is 2.60x, in line with the others, the multiples 5.05x for EBIT and 4.24x for EBITDA show a lower valuation compared with its competitors.
Baoshan Iron & Steel and CMOC Group are two prominent Chinese players. The former, commonly known as Baosteel, is a state-owned enterprise and one of the largest steel producers in the world, including flat steel, long steel, and specialty steel products. Its operations are primarily located in China, with major production facilities in Shanghai, Jiangsu, and Zhejiang provinces. The latter is a multinational mining company primarily engaged in the exploration, mining, and processing of copper and molybdenum, with mines in China, in Hunan and Xinjiang. It also has international presence through acquisitions and partnerships in countries like Australia, the Democratic Republic of Congo, and Brazil. Both of them show comparatively lower profitability metrics, particularly in gross margin and EBITDA margin. Baoshan's gross margin of 7.5% reflects challenges in production efficiency, while CMOC Group's gross margin of 8.1% indicates similar struggles. However, both companies exhibit improvements in profitability metrics over the forecast period, suggesting potential for growth and optimization in the future.
Although headquartered in Brazil, Vale conducts its main business in the APAC region, with 68.7% of its revenue coming from there. The company is a leading producer of iron ore, nickel, and copper, with extensive operations in Australia, Mozambique and New Caledonia.
Baoshan Iron & Steel and CMOC Group are two prominent Chinese players. The former, commonly known as Baosteel, is a state-owned enterprise and one of the largest steel producers in the world, including flat steel, long steel, and specialty steel products. Its operations are primarily located in China, with major production facilities in Shanghai, Jiangsu, and Zhejiang provinces. The latter is a multinational mining company primarily engaged in the exploration, mining, and processing of copper and molybdenum, with mines in China, in Hunan and Xinjiang. It also has international presence through acquisitions and partnerships in countries like Australia, the Democratic Republic of Congo, and Brazil. Both of them show comparatively lower profitability metrics, particularly in gross margin and EBITDA margin. Baoshan's gross margin of 7.5% reflects challenges in production efficiency, while CMOC Group's gross margin of 8.1% indicates similar struggles. However, both companies exhibit improvements in profitability metrics over the forecast period, suggesting potential for growth and optimization in the future.
Although headquartered in Brazil, Vale conducts its main business in the APAC region, with 68.7% of its revenue coming from there. The company is a leading producer of iron ore, nickel, and copper, with extensive operations in Australia, Mozambique and New Caledonia.
Source: FactSet
As a leading company in the industry, it demonstrates strong profitability indicators, evidenced by its 41.8% gross margin, which suggests effective production methods. Its great operational profitability and efficient cost control procedures are reflected by its EBITDA margin of 42.2% and EBIT margin of 35.1%. The company has a 19.2% net margin, which solidifies its standing as a major participant in the world market for metal ore. On the contrary, Vale is valued at lower multiples compared to the other peers in the industry.
Navigating Global Market Dynamics
In 2022, aluminium was the leading industrial metal in terms of global mine production volume, amounting to 69 million metric tons. Now copper is taking over industrial metals, due to its critical role in powering the green transition. Its demand is projected to double from 25 million today, to around 50 million by 2035. As mentioned before, the combination of geopolitical tensions, with sanctions due to the Ukraine-Russia war, and the imbalance between supply and demand, caused a steep increase in prices for industrial metals, with expectations for them to grow further. In particular copper, “the metal of electrification”, added 1.6% to $9,604 a tonne, its highest level in 22 months: being an essential metal for energy renovation, with the recent growth in green investments, its demand has boosted.
The movements in the prices of industrial materials are closely monitored as they can have far-reaching implications on various metal processing industries, such as automotive, steel, machine construction, jewellery-making, and electronic, in which they are used on a smaller scale but are seeing faster consumption growth in the latest years. Importantly, these fluctuations exert significant influence over the construction sector, potentially setting off ripple effects throughout the broader economy.
When it comes to strong players, China is the major one in the global metal industry, producing over half of the worldwide steel output and an 8.6% share of the world's mine production of copper. These commodities’ prices are a proxy for the markets’ performance, proving that being a big player in this sector guarantees a strong influence on international markets, meaning the refining and manufacturing of end products still predominantly revolve around China. Moreover, the huge supplier has also been boosting demand for industrial metals, as Chinese manufacturers have been showing signs of revival in the industry. In China, the recycling rate of steel scrap used in crude steel production reached nearly 22% in 2021 and is likely to increase further in the coming years, guaranteeing a continued strong influence aligned with recent greener trends. Chinese metal firms have expanded in international markets, reinforcing structural imbalances, and increasing pressures on newer market entrants competing for market share. In order to diversify and reduce dependence on predominant players such as China, mining companies’ goal is to continue developing robust offshore supply chains that can support not only the mining of these strategic metals but also the refining, processing, and manufacturing processes, looking for equal competition and fairness with relocation.
In 2022, aluminium was the leading industrial metal in terms of global mine production volume, amounting to 69 million metric tons. Now copper is taking over industrial metals, due to its critical role in powering the green transition. Its demand is projected to double from 25 million today, to around 50 million by 2035. As mentioned before, the combination of geopolitical tensions, with sanctions due to the Ukraine-Russia war, and the imbalance between supply and demand, caused a steep increase in prices for industrial metals, with expectations for them to grow further. In particular copper, “the metal of electrification”, added 1.6% to $9,604 a tonne, its highest level in 22 months: being an essential metal for energy renovation, with the recent growth in green investments, its demand has boosted.
The movements in the prices of industrial materials are closely monitored as they can have far-reaching implications on various metal processing industries, such as automotive, steel, machine construction, jewellery-making, and electronic, in which they are used on a smaller scale but are seeing faster consumption growth in the latest years. Importantly, these fluctuations exert significant influence over the construction sector, potentially setting off ripple effects throughout the broader economy.
When it comes to strong players, China is the major one in the global metal industry, producing over half of the worldwide steel output and an 8.6% share of the world's mine production of copper. These commodities’ prices are a proxy for the markets’ performance, proving that being a big player in this sector guarantees a strong influence on international markets, meaning the refining and manufacturing of end products still predominantly revolve around China. Moreover, the huge supplier has also been boosting demand for industrial metals, as Chinese manufacturers have been showing signs of revival in the industry. In China, the recycling rate of steel scrap used in crude steel production reached nearly 22% in 2021 and is likely to increase further in the coming years, guaranteeing a continued strong influence aligned with recent greener trends. Chinese metal firms have expanded in international markets, reinforcing structural imbalances, and increasing pressures on newer market entrants competing for market share. In order to diversify and reduce dependence on predominant players such as China, mining companies’ goal is to continue developing robust offshore supply chains that can support not only the mining of these strategic metals but also the refining, processing, and manufacturing processes, looking for equal competition and fairness with relocation.
Embracing Sustainability Ahead: Metal Scarcity in the Supply Chain
The observed boost in prices can inevitably result in increased costs for consumers and potential supply chain disruptions. For example, copper is essential for the production of electric vehicles, a market with a forecasted growth of more than 65%, but with the recent constraint in metals supply, there will be higher costs for manufacturers, which will be reflected in the final prices for consumers. The volatility in prices pushes companies to lock in financing and partnerships, to hedge from market uncertainty and delays due to changes in regulatory standards; companies are pushing on ESG projects, to ensure themselves financing and ensure compliance with policy support.
When it comes to the value chain, the scarcity of metals can have a positive effect on a broader perspective, as it will drive significant advancements in technology, such as material substitution, product redesign, and the development of alternative materials. Consequently, mining companies will need to find alternative ways to have enough materials for their operations: companies that excel in recycling and adopting sustainable practices will gain a competitive edge in the market, hedging the risk of material scarcity. Efficient recycling technologies and processes will be vital to recovering metals from discarded products and integrating them back into the supply chain.
The observed boost in prices can inevitably result in increased costs for consumers and potential supply chain disruptions. For example, copper is essential for the production of electric vehicles, a market with a forecasted growth of more than 65%, but with the recent constraint in metals supply, there will be higher costs for manufacturers, which will be reflected in the final prices for consumers. The volatility in prices pushes companies to lock in financing and partnerships, to hedge from market uncertainty and delays due to changes in regulatory standards; companies are pushing on ESG projects, to ensure themselves financing and ensure compliance with policy support.
When it comes to the value chain, the scarcity of metals can have a positive effect on a broader perspective, as it will drive significant advancements in technology, such as material substitution, product redesign, and the development of alternative materials. Consequently, mining companies will need to find alternative ways to have enough materials for their operations: companies that excel in recycling and adopting sustainable practices will gain a competitive edge in the market, hedging the risk of material scarcity. Efficient recycling technologies and processes will be vital to recovering metals from discarded products and integrating them back into the supply chain.
By Andrea Cavenago, Lodovico Attilio Del Re, Sofia Rubino, Pietro Golzio
Sources:
- Financial Times
- CME Group
- ICSG
- FactSet
- Statista
- WSJ
- The Economist
- BBC