Base metals shine in wild 2021 as gold falters, iron ore sinks

Metals are heading for more drama after a tumultuous 2021 dominated by supply squeezes, China’s property-led economic slowdown and a global energy crisis that hints at more disruptions to come.

This year saw copper hitting a record as the pandemic roiled supply and demand, but tin was the star performer as base metals marched higher. Gold bulls were ultimately left disappointed even as inflation raged. And iron ore suffered a boom-to-bust collapse from above $200 a ton to below $100 on China’s waning appetite.

The contours of 2022’s other major drivers are already visible. Dangerously low inventories was a theme across metals that will carry into next year — especially if the global economy continues to improve. Beijing’s stimulus measures might put a floor under China’s steel woes, while Fed tightening and stubborn inflation is a headwind elsewhere. Watch energy and the climate agenda, which should dominate aluminium in particular.

“Base metals performed outstandingly well this year, which is not surprising as they effectively made up ground that was lost during 2020,” Gavin Wendt, founding director at Mine Life Pty. “Next year should see a continuation of overall positive demand, but with greater price volatility as the supply side recovers.

Tin doesn’t normally get much attention, but it was the big winner and perhaps a poster-child for metals in 2021. Prices have nearly doubled from a year ago, with an electronics boom fueling demand and Covid-19 disruptions crimping supply. The LMEX index of six London-traded metals is heading for a seventh quarterly gain.

Score card

Iron ore was among the big losers of 2021, with the apparent end to China’s era of frenzied construction dragging on prices. But authorities are expected to implement fiscal stimulus and monetary policies to counter this year’s sharp slowdown. The latest manufacturing data for December already showed upward momentum intact.

Gold finishes the year a little below where it started, after a meandering 2021 as investors turned to riskier assets including energy and industrial commodities. Fed tightening threatens more headwinds. Investors largely expect the Fed to raise interest rates three times in 2022, with some market participants expecting a hike as early March.

For now, soaring energy costs in Europe also continue to dominate the supply-side for base-metals. In its latest impact on production, Alcoa Corp. said this week that it will halt a Spanish plant for two years on high energy costs. Aluminium has risen more than 40% this year, and banks forecast a deeper deficit next year as the world’s decarbonisation push starts to tighten output worldwide.

On the last day of 2021, base metals were mostly lower, with copper edging down 0.4% in London for a 24% advance this year. Iron ore gyrated around $120 a ton and headed for a 25% decline this year. Gold was little changed Friday and down 4% in 2021.

© 2021 Bloomberg