Base Metals Outlook 2021: Most markets around the world remained closed for most of the last year due to the Corona epidemic. The industries were closed due to the lockdown, which had a major impact on the demand for base metals. Worldwide movement was halted and supply of only essential commodities such as rations or medicines was in progress, which severely affected the demand for base metals and the base metals prices fell to record levels. However, after some time the lockdown was lifted and a gradual economic recovery began and base metals gained gains. Investors in base metals can get better returns this year due to increasing industrial demand.
In the base metals last year, copper gave the best return in 2020 and it had a gain of 34.78 percent. Copper gained momentum due to monetary and fiscal stimulus packages and the fall in the US dollar. Apart from this, due to less supply of copper, its price had also increased. Copper prices are expected to remain strong this year as well.
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Base metals are expected to rise this year
In the midst of the corona epidemic, the year 2020 was like a coaster ride for the worldwide financial market. The year-to-year fluctuations continued in 2020 due to a decline in growth due to the Corona epidemic, the announcement of relief packages and extremely lax monetary policies. However, the arrival of the vaccine and the relief packages have raised hopes of an early economic recovery. This will increase investment and increase expenditure, which can increase commodity prices.
Last year, the United States approved a relief package of $ 2 trillion (Rs 146.73 lakh crore) due to the fear of recession due to corona epidemic to support the economy. After this, US President Donald Trump approved an additional package of $ 2.3 trillion (168.74 lakh crores). The US Fed Reserve lowered interest rates last year in March 2020, to near zero. It is being hoped that the US Fed Reserve will not make much changes till 2022 next year to strengthen the US economy.
- Copper prices are considered as an economic barometer and indicate about economic activity. Economic activity around the world was severely affected by the lockdown imposed due to the Corona epidemic. Because of this, copper prices went down to the lowest level since 2016. Its price on MCX was dropped to Rs 335 per kg in March 2020. However, it changed trend in the second quarter of 2020 and by the end of the year it had risen by 34.78 per cent to reach Rs 594.70 per kg.
- Prices started falling even before the worldwide lockdown was imposed in the first quarter of 2020 as demand from its major consumer China and other countries fell by 15 per cent. However, in July 2020, China started buying and on an annual basis 38 percent more imports of copper were imported.
- Copper production declined by 1 percent in Chile and Peru in the first nine months of 2020 due to the Corona epidemic. Copper prices were supported by a weak dollar and liquidity push by major central banks and low interest rates.
- Talking about 2021 this year, due to increasing demand from the building, construction and electronic network infrastructure sector, its price may be strengthened.
- Due to the Green Energy Initiatives by governments around the world, its demand will also remain.
Demand from China will remain constant, due to this, the price of copper will remain strong.
- The US may issue economic and fiscal packages. Given this, the dollar may remain weak. In such a situation, the price of copper will get support.
- According to the International Copper Study Group, there may be a 4.5 percent increase in copper mine production in 2021, but copper prices cannot be expected to fall due to a decrease in supply according to demand.
This year, in 2021, copper can touch a level of Rs 690 per kg.
- The Corona epidemic severely affected demand for industrial metals such as nickel. The price of Nikil went down to a low of Rs 805.80 per kg in March 2020 last year.
- Due to the increase in demand for nickel from the electric vehicle battery sector and China, its price increased.
The price of Nikil reached Rs 1335 per kg in December. It gained 17.78 per cent in the domestic market by the end of the year.
- Indonesia, the largest exporter of nickel, had banned its export only in January 2020 as the demand for domestic industries there increased. Indonesia aims to become an electronic vehicle production hub. For its supply, China turned to Indonesia instead of Indonesia and in October 2020 it imported 36% more nickel from the Philippines.
- Nikil’s demand from electronic vehicle segment remains constant. In the first half of last year, the Corona epidemic affected demand for electronic vehicles. However, its demand is increasing gradually. Tesla produced 51 percent more electric vehicles in the third quarter than in the third quarter of 2019. Due to this, the demand for nickel for lithium batteries is increasing.
- According to the International Nickel Study Group, the global output of nickel is estimated at 24.36 lakh tonnes in 2020. This year, in 2021, its production can increase by 6.2 percent.
- Consumption of nickel will increase in 2021 this year as the emphasis is on electronic vehicles.
- Nikil prices in 2021 can show a level of Rs 1420-1630 per kg.
- Last year, the demand for lead was severely affected by traffic restrictions in 2020. Its most demand comes from the automobile sector, so they are used to make lead-acid batteries. Last year, there was a big decline in car sales. In spite of this, last year, the price of lead increased by 2.06 percent by the end of the year on MCX and 3.41 percent on LME. The price of lead remained under pressure till May 2020.
- China, the world’s largest automobile producer, however, imported only 20,318 tonnes of refined lead from January to October last year, 77 percent less than the same period of 2019.
After May 2020, its price started recovering and after the restriction was removed, its price strengthened.
Led to the demand for a new battery, Led found support.
- Talking about 2021 this year, its price can reach the level of Rs 200 per kg.
- Zinc prices rose 20.84 per cent on LME and 18.62 per cent on MCX, despite the impact of mining activities during the lockdown in 2020. In the event of economic uncertainty due to Corona epidemic, its prices started climbing. Fiscal and monetary packages around the world increased its demand.
- The biggest reason for the increase in zinc prices was the decline in mining in many parts of South America. According to the International Lead and Zinc Study Group, zinc supply is expected to decline by 4.4 percent worldwide last year. The lockdown affected its production in Peru, Mexico and Bolivia.
- Talking about 2021, demand for zinc may remain. It is mainly used for making galvanized steel and Chinese steel.
- Zinc can show a level of Rs 265 per kg in 2021.
- In the second half of 2020, aluminum prices rose in the second half and prices on MCX reached before the onset of the Corona epidemic. After this, aluminum prices reached their record prices since April 2018. In 2020, aluminum prices rose by 19.80 percent on MCX and 9.84 percent on LME.
- Apart from the weakness in the dollar due to the stimulus package and easing monetary policies, the strong recovery in China accelerated aluminum prices. China did not import aluminum in the last few years, but last year China started purchasing aluminum in large quantities and it bought 1 MT of aluminum in the first ten months of last year. Because of this, the aluminum surplus around the world was reduced.
- Talking about 2021, there may be pressure on its price because China’s aluminum smelting capacity will continue this year. Chinese primary aluminum production is estimated to be 3.8 percent i.e. 37.3 MT in 2020. This year its production is estimated to increase by 5.4 percent. However, except China, its production worldwide is expected to fall by 1 percent in 2020 and by 3 percent in 2021.
- The demand for aluminum is expected to decline by 11 percent in 2020 and may increase by 9 percent in 2021. It may take up to 2022 to reach its demand in the pre-corona situation, that is, next year, corona can become pre-condition with respect to aluminum.
- In 2021, aluminum prices can show a level of Rs 168-180 per kg.
(This report is based on Religare’s Commodity Annuity Outlook 2021.)