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Supply-side factors are continuing to provide broad overall price support for a range of commodities, despite uncertainty on the demand front – which is insulating many commodities and producers through near-term market volatility.


A very good example is what’s happening in the zinc market right now. In some respects, it has similarities to what we saw in the nickel market a couple of months ago, where a short squeeze developed, and prices soared. Right now, on the LME plunging stockpiles of zinc have left buyers facing a huge premium to obtain metal for immediate delivery. Corresondingly, the premium for spot zinc over futures is the biggest it has been since 1997, a situation known as backwardation. At the same time, LME inventories have fallen to their lowest level in at least 25 years. Presently, available LME zinc stockpiles represent about half a day’s worth of global consumption.


Another sector that has ongoing question marks around supply is the oil sector. And it’s not just the supply of oil itself, refining capacity in the West has been steadily declining as older refineries close. This has led to a surge not only in oil prices, but an even greater rise in refined products – such as petrol, diesel and aviation fuel. We have seen OPEC+ greenlight the final of its series of monthly output increases, in turn giving Saudi Arabia a production target of almost 11 million barrels a day for August. Aramco has only pumped at that level for a grand total of eight weeks in its entire history, in late 2018 and early 2020. Now, it faces the prospect of sustaining that level or higher, for several months, perhaps even longer, for the rest of 2022 and through 2023. Regardless of the true potential production number, one thing is clear: the days when Aramco could easily pump more and more barrels are over. From now on, each incremental barrel is a struggle.


Lithium continues to defy the sceptics when it comes to price action, which is the real litmus test of market sentiment. Producers are seeing end-users that are desperate to secure supply – shooting down the argument that there is a situation of oversupply in the market. We know that Pilbara Minerals’ most recent online spot auction generated a price in advance of $7,017 a ton for spodumene concentrate, which is a fresh record. At the same time, we’ve seen an index of Chinese lithium carbonate prices generally stable this quarter, after rising fivefold in the year through to March. The reality is that most industry groups are modelling a significant lithium supply deficit of around 20% for the period from 2023 to 2030.


Interestingly, China’s iron ore imports have remained pretty consistent during the period from early 2020 to now, while iron ore prices have ranged from a high of $220 a ton to a low of $80 a ton. Volatility is the name of the game in the iron ore business, which is not surprising when one customer, China, dominates consumption. At present, prices are flat due to uncertainty around China’s covid reopening timetable. But underestimate iron ore at your peril, as it has a tendency to surprise – as it’s proven over the past two decades.


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