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aluminium|automotive|copper|energy|financial|manufacturing|power|resources|supply chain|manufacturing-industry-term|environmental

Global commodities market volatility to ease in 2023 after disruptive 2022 – ERG

ERG CEO Benedikt Sobotka

20th December 2022

By: Donna Slater

Features Deputy Editor and Chief Photographer

     

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As a result of short-term price drivers, such as the ongoing Covid-19 lockdowns in China, monetary policy in the US and the fallout from the energy crisis caused by Russia’s invasion of Ukraine, most commodity prices sold off sharply this year – a trend that is likely to ease in 2023, says Eurasian Resources Group (ERG) CEO Benedikt Sobotka.

He adds that the global market likely overreacted to these price pressures and that it is at odds with actual state of most commodity markets.

“We anticipate that the demand structure for many commodities is undergoing a fundamental shift driven by the global net-zero transition,” notes Sobotka.

As for cobalt, he says that, despite strong supply growth this year, which is estimated to have increased 20% year-on-year, production of the commodity is facing significant downside risks in 2023, some of which have already been realised. “This could mean flat, or even negative, mine supply growth next year.”

This is in stark contrast to cobalt demand where, for example, new-energy vehicle (NEV) sales are set to supersede the ten-million-unit mark by the end of this year.

Global passenger NEV sales reached a new all-time record of 1.1-million units in November, after exceeding the one-million units mark in September for the first time ever, he adds.

In 2023, automotive forecaster and analyst organisation Rho Motion predicts, global electric vehicle (EV) sales will continue to surge to 14.4-million units, meaning that 17% of all car sales will be electric – up from 13% in 2022, and more than double their 8% penetration in 2021.

“This immense sales growth in 2023 will be underpinned by stronger growth in Western Europe of 21% year-on-year, as supply chain bottlenecks recede and new manufacturing capacity comes online,” says Sobotka.

The market is also observing a huge uptake of lithium-ion batteries in the EV space, with total battery capacity from this sector expected to reach 37.3 GWh – an increase of more than 17% year-on-year in 2023 according to Rho Motion.

As such, Sobotka says, the continuing surge in cobalt demand from the EV sector, a recovery of demand from the portable electronics and aerospace sectors, prospective buying by China's State Reserve Bureau and major supply headwinds, the cobalt market looks set to transition from a moderate surplus in the second half of 2022 to a deficit in 2023.

According to commodities analyst CRU, lithium-ion batteries currently account for almost 45% of total cobalt demand and are expected to increase to around 60% in five years’ time. Just ten years ago, this figure was only 10% of total demand, says Sobotka.

In terms of copper, Sobotka says there is currently a consensus view that a surplus market in 2023 is rapidly shifting to one of deficit, with total visible copper stocks being down 36% year-on-year. This is less than a quarter of the average level of 840 000 t at this time of year in the 2015 to 2019 period leading up to the pandemic.

On the supply side, the above-average rate of mine disruptions experienced in the market this year looks set to extend into 2023, with numerous pronounced guidance reductions already announced for the coming years by major miners, says Sobotka.

However, he points out that copper consumption increased markedly in the second half of this year, with expectations this trend will continue in 2023, especially in China, by the easing of Covid-19 restrictions and roll-out of vast economic stimulus.

“In view of the[se] dynamics, the market is increasingly shifting away from an outlook of a surplus in 2023, to one of a deficit.

“This shift is already well reflected in the annual benchmark premiums for 2023 copper cathode supply, which have risen markedly, indicating a tightening of cathode supply,” says Sobotka.

Regarding aluminium, he says a broadly balanced market in 2023 is expected following strong price volatility.

“The global aluminium market had a strong year both in terms of price volatility and a shift in its medium-term fundamentals. The London Metal Exchange [LME] aluminium cash price skyrocketed to the highest level since 1988 at $3 985/t in March,” says Sobotka.

He also points out that the European aluminium market faces a prolonged energy crisis amid radical cuts in energy imports from Russia.

“US aluminium consumption has been mostly hit by sharp rises in interest rates, whereas the Chinese market has continued to be impacted by the country’s recent zero-Covid policy and financial downturn in the property sector,” says Sobotka.

These factors resulted in the LME aluminium price crashing to $2 080/t in September – its lowest since February 2021, he adds.

Global aluminium supply faced significant challenges this year, says Sobotka. “European smelting capacity has been cut by 1.1-million tonnes a year, with more cuts likely to follow during this winter and next.

“In addition, not all of the closed capacity is expected to come back online amid steadily rising power costs and the impact of environmental regulation,” he says.

While the global aluminium market is expected to be broadly balanced in 2023, Sobotka says aluminium prices should remain elevated against a backdrop of higher smelting costs, raised interest rates and higher demand in China amid the anticipated change in the country’s Covid-19 policy.

In addition, he says the aluminium industry will need to significantly increase investment in the coming years to meet decarbonisation targets and partially replace Russian metal exports, with yearly investments needing to move from hundreds of millions of dollars to tens of billions of dollars.

Edited by Chanel de Bruyn
Creamer Media Senior Deputy Editor Online

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