As LME metals arrest their decline on a mixture of mine shutdowns and optimism that lockdowns are easing, attention is turning to what the future will hold.
With no vaccination in sight, and so no real end to the Covid cloud hanging over global economies, fortune telling is a fool’s errand. That said, it’s not stopped many pundits from divining a future that does not include their own pet peeves, be they commuting, pollution or the military-industrial complex that has perpetuated rapacious global capitalism etc…
News that the Norwegian Sovereign Wealth Fund has decided to no longer invest in Glencore and Anglo American for environmental reasons (yes, that’s right, a fund accumulated from oil is taking a brave stance against polluters), will be seen in some quarters as a sign of what’s about to befall the metals industry.
For now, there’s certainly less production, trading and consumption of metals, but in many respects metals hold the key to the future. The transition to electric vehicles requires more cobalt to be mined for their batteries, along with extra nickel, copper and aluminium. Meanwhile, post pandemic, states are likely to turn to infrastructure spending, boosting steel, copper and aluminium purchasing to kickstart their economies, provide work for the unemployed and invest for the future.
Other trends that were becoming more apparent in metals trading could be accelerated.
Expect to see greater use of technology and data in the way that supply chains are managed to make them more efficient and the transfer of information more secure.
New technology will make it easier to analyse markets and pricing, to the benefit of all. Price discovery has been an opaque business for years: the last financial crisis led to the IOSCO (International Organization of Securities Commissions) process by which common standards were agreed and applied to the price reporting agencies. The legacy of this crisis could be to entrench new working methods encompassing a greater degree of electronic communications between market participants, which will encourage more forms of data collection, dissemination and democratisation.
Most significantly, the industry will need to pay greater attention to Environmental, Social and Governance issues. Companies are increasingly likely to view this as a positive, with producers such as Rusal and Hydro now successfully developing the market for low carbon aluminium. Rusal even secured from its lenders a $750 million pre-export finance facility linked to sustainable aluminium sales, evidence that doing the right thing need not cost more.
The Norwegians’ investment, the Russsians’ loan and the shift to EVs, government infrastructure decisions, are all examples of actions that will determine the future. To get a grip on longer term trends, follow where the money is going now and not the pundits.
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Originally published at https://www.chai-uk.com on May 14, 2020.
