Investors are piling into wagers on industrial metals like copper and nickel, betting that coronavirus vaccines and stimulus programs will drive a boom in manufacturing activity as part of a global economic resurgence.
Tim Burenga, a member of the Association’s Board of Directors and executive at Worksaver, says the industry is seeing a “perfect storm” in material prices.
“Domestic mills took capacity out of the market this year, which dried up supply,” Burenga said. “Ports and rails are in a mess because of the container shortage, which limits quantities of foreign coils arriving in the U.S. This has allowed the steel producers to accelerate their price increases to near historic levels.”
Iron ore, the main ingredient of steel, is one of the best-performing assets in 2020. Prices for copper have risen to their highest level in almost eight years. Other raw materials, such as aluminum and zinc, have added roughly 15 percent since the end of September and 40 percent or more since mid-May. And shares of metals producers are on a tear, climbing alongside other stocks closely tied to economic growth.
“It has been as bad as submitting an order on Tuesday based on a quote from Monday, and finding out that they are no longer honoring that quoted price,” said board director Ben Hellbusch with Duolift. “Price increases are effective immediately.”
On Monday, that meant the price on structural tubing increased $100 per ton, Burenga said. He also said the market will absorb only so much in terms of a price increase.
“I’m fearful for our business and industry that this great market we are in will come to an abrupt stop,” he said. “This has happened every time raw materials increase at an accelerated pace like this.”
The climb highlights the scope of the recent market rally, which propelled major stock indexes to all-time highs. Vaccine trial results and emerging clarity on the national political landscape has lowered the level of angst on Wall Street, fueling bets that economic stimulus measures will further juice asset prices. With stocks at records and bond yields still near all-time lows, some of that money is now moving toward raw materials, the Wall Street Journal reported.
Accelerating factory activity in the U.S. and China in recent months has been a boon for metals producers. Manufacturing has so far led the world economy out of the downturn, outpacing segments still struggling with coronavirus restrictions.
Metal prices will likely receive an additional boost from a shift toward renewable energy. Green energy projects from electric-car charging stations to wind turbines use large amounts of copper and other metals, contributing to demand in the sector.
“No matter where I look, I see a price increase looming,” Hellbusch said. “It is only a matter of time before we pass it along to our customers and find out the effect it has on our business.”
Source: Wall Street Journal