Metal prices remain elevated in May

June 6, 2021 (MLN): Metal prices continued to remain elevated after hitting fresh new highs in May while prices will remain at their current highs or likely witness slight correction in the second half of ongoing calendar year, said Fitch Solutions in its weekly commodities outlook. 
“After rallying to fresh new highs in May, industrial metal prices continue to remain elevated despite having stabilized in recent days. We are now neutral to bearish towards most metals as we head towards the second half of the year,” the research note issued by the Fitch said. 
Iron ore and steel prices are once again rising higher, after a temporary dip in May as the Chinese government sought to regulate the market, amid strong demand from the Chinese steel industry and supply issues from the largest global producers. 
Going forward, an improvement in supply and lower consumption by downstream players at such high prices will cap price gains for both iron ore and steel in the coming months. 
In regards to non-ferrous metals, Fitch expects near-term stabilization after copper and aluminum, especially, reached fresh-new highs in May. Nevertheless, there should be no collapse and prices will remain elevated compared to previous years, on the back of a weakening US dollar, tight fundamentals and positive investor sentiment due to the ongoing global economic recovery. 
Fitch last month revised steel price outlook for 2021 at $880/tonne from $660/tonne amid ongoing demand-supply mismatches. Meanwhile, it expects prices to correct in the second half of 2021 amid rising demand from China as well as on the back of market regulation by the Chinese government. 
Global steel prices have seen a significant boost since the last quarter of 2020, with prices around the highs last seen in mid-2008. Steel prices have thus far averaged $883/tonne in the year-to-Daye while the 2020 average was $582/tonne. Moreover, Fitch expects this rally to start stabilizing as the second half of the year approaches (with Chinese prices already starting to show some weakness due to government market regulation), however it does not anticipate a significant reduction in price levels or a collapse. 
This is due to buoyant demand despite steady production levels. 
Brent crosses $70 mark,
On the other hand, Brent finally broke above key resistance at $70.0/bbl last week and as of June 3, was trading at $71.5/bbl, having gained around 3% over the past week. 
Sentiment was buoyed after OPEC+ decided to unwind its deal at a relatively slow pace, while the normalization of economic activity and population mobility in the US and Europe is raising expectations for demand, said Fitch Solutions.
The outbreak of the coronavirus in India is also being brought under control, with daily infection rates dropping by around two-thirds over the past month. However, the virus has been resurgent elsewhere in Asia, including in Thailand, Indonesia, Malaysia and Cambodia, while infection rates are declining but elevated in many other markets in the region. The Covid onslaught in Asian markets poses risks to near-term demand, threatening to offset gains elsewhere. 
On the supply side, signs of recovery in US shale could pose headwinds for Brent, although continued capital discipline will likely dampen the price responsiveness of these producers, it added. 
Iran remains a wildcard, with the potential to bring back upwards of 1.5 million barrels per day of supply to the market, but upcoming Iranian elections will likely delay the return of these barrels until 2022. 
Fitch expects prices to average around $66.0/bbl for 2021, although the balance of risk is now skewed to the upside.

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