(News Bulletin 247) – The metals market experienced a volatile year in 2022, torn between geopolitical and inflationary tensions and the health situation in China. The energy crisis that resulted from the war in Ukraine has put the need to accelerate the energy transition back on the table. In this context, a massive demand for metals, and resilient to cyclical slowdowns, is emerging, estimates OFI Invest AM.

Safe haven par excellence for hedging against market risks, gold has not fully assumed its role in 2022. The course of the yellow metal has been strewn with pitfalls, the strength of the dollar and the rise in interest rates interest having played spoilsport.

Rising interest rates indeed penalize the precious metal – which John Maynard Keynes dubbed the “barbaric relic” – because gold does not produce income, such as dividends or coupons. The increase in rates thus undermines the arbitration which consists of investing in gold rather than investing cash and therefore receiving interest. Thus, the price per ounce fell back to 1,630 dollars in early November. Silver, whose price movement is also closely linked to the course of the precious yellow metal, was not spared and corrected almost twice as much as the yellow metal.

As for industrial metals, their prices accelerated at the start of 2022, supported by the post-Covid recovery and then fears of supply from Russia, particularly for aluminium, nickel and palladium. Nickel, the “metal of the devil”, saw its price register an all-time high of up to 100,000 dollars per ton on March 8, 2022, due to the importance of Russia in the production of the silvery-white metal.

But prices then eased, nickel, like the other metals, experienced a sharp correction over the rest of 2022, led first by concerns about the Chinese real estate sector, then by the decisions of movement restrictions in China to limit a new wave of Covid.

A catalyst from China

At the end of last year, the deal changed on the commodity market, metals included. The multiple announcements of relief from containment measures in China since November have enabled industrial metals to rebound violently, with several markets in this universe gaining more than 10% in the last month of the year.

For OFI Invest AM, the evolution of the health situation in China will be one of the major points of attention, if not the most important, which would argue for a recovery in the prices of raw materials, including metals. The other factor supporting demand is linked to the Chinese real estate sector, including an acceleration in the start-up of infrastructure projects. The management company recalls that the Middle Empire is the first consumer of metals and the second of oil.

Beyond the economic aspects, OFI Invest AM reports that China has embarked on an ambitious decarbonization program. The latter translates concretely into the development of the electrification of transport, a massive deployment of the electricity network, and the installation of significant renewable energy capacities.

“In 2022, the country alone represents around half of the renewable capacities installed in the world. These transformations are very consuming of metals. Thus for copper, we observed in 2022, in spite of the considerable difficulties of the real estate sector, a positive growth demand, greater than the destruction of demand linked to the construction sector”, underlines the management company.

An energy transition, support for the resumption of classes

As this transition is set to accelerate in the coming years, the consumption of metals will automatically increase. To support its remarks, OFI Invest AM cites Goldman Sachs’ forecasts concerning the evolution of the electric car sector (“The beginning of a demand transition, a potential positive start”, Goldman Sachs, 23/11/2022). The American bank forecasts annual growth in electric car sales in China of 80% between 2022 and 2030. Chinese demand for copper and aluminum should therefore grow by 55% and 91% respectively over the period.

“China is today the country that is accelerating the most on energy low carbonand almost half of all the capacities installed in the world in 2022 were in the Middle Kingdom”, indicates OFI Invest AM.

On the aluminum side, the management company recalls the central role of this metal in the construction and transport sectors, with an increasingly widespread use in low-carbon technologies. However, the aluminum market is caught between two fires. On the one hand, the demand for this metal is constantly increasing while the supply has dwindled over the years due to the closure of production capacities in Europe. “The announcements of closures have multiplied, to the point of dividing aluminum production capacities by two in Europe”, recalls OFI Invest AM, because the latter are threatened wherever energy prices are likely to rise in the years to come”.

According to Goldman Sachs projections, cited by OFI Invest AM, the demand for lithium, cobalt and nickel linked to China’s energy transition will also increase by a factor of 2.5 to 4.3 times in the meantime.

In this context, the price of the “devil’s metal” (nickel therefore) should also benefit from this green transition of Chinese and European vehicles. “Its very central role in the energy transition, and in particular the gradual increase in demand linked to the production of electric batteries, is now becoming more and more evident” specifies the management company.

“The heart of the problem associating the energy transition and nickel is obviously the manufacture of batteries”, explains Yves Jégourel, co-director of CyclOpe, on the air of BFM Business.

“The use and demand for batteries will grow considerably through the development of batteries lithium ion. From a technological point of view, we have observed a recomposition of the batteries, with a lot more nickel and less cobalt”, he continues.

For its part, OFI Invest AM quotes a report from the European Commission, in which the world demand for nickel is estimated at 2.6 million tonnes per year in 2040, for the production of batteries alone. In addition to the electrification of the automotive sector, the management company identifies another factor supporting nickel prices, namely the growth of renewable energies which require large quantities of the white metal.

Less well known, zinc could also benefit from this energy transition movement, due, recalls OFI Invest AM, to its ability to protect metals against corrosion. A property that is sought after in production because the addition of this metal significantly prolongs the life of steel constructions and therefore reduces the need for primary resources.

Zinc is also used in the manufacture of solar panels, in particular photovoltaic cells, and as protection against corrosion in the structure of solar panels, recalls the management company, which according to it will constitute another source of growth in demand. As with aluminium, the supply situation is all the more tight as the energy crisis in Europe has caused the closure of more than half of zinc production capacity.

“Awareness of the imperative of energy transition and the urgency of carrying it out, should give a certain resilience to the consumption of metals in the years to come: whatever the economic situation, the installation of low-carbon capacities must be done at a forced march”, recalls OFI Invest AM.