Base Metals Dashboard - Week Ending March 10, 2023

Steel buyers have had to accept these ever-increasing prices, largely because end-user demand has increased, causing service center inventories to dwindle. Steelmakers have been disciplined about production in recent months, with capacity utilization levels at 75% since October. These factors have helped push up both spot and futures since last fall.

Cobalt

Due to an expected cobalt market surplus of 5,570 mt, Liberum Capital predicts that cobalt prices will average $24.90/lb. in 2023, and $22.90/lb. in 2024. AEGIS is intrigued by these forecasts, as both are higher than the current 2023 average CME Cobalt futures price of $18.25/lb., and the $19.72/lb. approximate average for 2024 CME Cobalt futures. We also note that spot cobalt prices have already dropped 60% from the highs of mid-2022, likely due to this expected supply surplus.

AEGIS feels that battery producers should hedge future usage while the market is in surplus. The reason we feel battery producers should be proactive on hedging is that the expected supply this year will likely be short-lived. For example, Liberum predicts that the market will switch to a deficit next year, and more importantly, it could ultimately grow to 20,000 mt by 2026.

Aluminum

All major LME metals fell on Monday and Tuesday after China’s National People’s Congress set a lower-than-expected GDP target of 5% and failed to launch any stimulus measures at its meeting last weekend. AEGIS notes that metals demand and prices have been extremely vulnerable to Chinese stimulus measures and COVID policies in recent months. Specifically for aluminum, global prices rallied in January due to an expected revival in Chinese demand as the country reopened and abandoned its COVID policies. However, given that prices have dropped since late January because Chinese demand has fallen short of expectations while their domestic production remains robust, AEGIS feels that end-users can use this opportunity to hedge at lower prices compared to a mere 30 days ago. Being proactive on hedging might put you “ahead of the curve,” as some analysts are still optimistic about demand in 2023. For example, Commonwealth Bank of Australia analyst Vivek Dhar recently stated, “raw materials consumption will probably remain strong in the first half on pent-up demand from the re-opening at the end of last year.” (Source: Bloomberg)

However, according to Emirates Global Aluminum (EGA), there are pockets of growing demand in some markets. EGA, the largest aluminum producer in the Middle East, believes that global aluminum demand will grow by 1 to 2% this year, even if global economies slow due to rising interest rates. EGA also believes that aluminum prices will struggle due to the global economic slowdown. EGA had a record $2 billion profit last year, and its average LME sale price was $2,715/mt, according to company statements. (Source: Bloomberg, Reuters)

The LME aluminum market seems to agree with EGA’s assessment that demand will not significantly outpace supply this year. The current futures forward curve for LME aluminum through 2026 is in contango, suggesting that the market is currently well supplied. Also, prices have been rangebound in early 2023, with little volatility.

Molybdenum

On March 13, the CME will launch cash-settled molybdenum oxide futures, according to their website. AEGIS notes that this product offering comes as both the physical and financial markets for battery metals have gained greater interest in the past 12 months. Moreover, this will provide a hedging tool for both producers and consumers. Molybdenum has traditionally been used to harden steel; however, there is increasing interest in other applications, such as battery technologies. Also, molybdenum is a byproduct of copper mining, thus, copper miners can use the CME contract to lock in a revenue stream. Molybdenum prices have rallied nearly 120% in the past year due to supply issues and strong demand, according to Bloomberg. (Source: CME, Bloomberg)

AEGIS will watch this market as it matures and will keep customers and prospects abreast of any developments. We do caution that it sometimes takes a long time for new financial markets to gain traction. For example, the LME launched molybdenum oxide futures in 2010; however, interest has been essentially nonexistent. Moreover, there has been no open interest in LME molybdenum oxide futures since 2016. Prior to 2016, open interest rarely exceeded 40 contracts.