Jan 08, 2021

Bright outlook for base metals

Bright outlook for base metals

Base metal prices were expected to continue to firm in 2021 says Australian financial services firm Fat Prophets.

Prices fell across the board with the advent of COVID19 said resources analyst David Lennox.

Government stimulatory programs continued to work on a number of levels to buoy the sector said Mr Lennox.

“The initial fears when COVID hit was that, yes, there would be a disruption to production and we did see commodity prices initially starting to fall,” he said.

“What happened, however, was that very quickly governments realized that was damaging their economies and out came the stimulatory programs. 

“…  because it went to the workforce to support the unemployed. That very quickly flowed through to the money supply.”

The second wave investment emphasis on infrastructure development was also helping said Mr Lennox.

“Firstly, those monies went to the workers, to support many that had been laid off,” he said. 

“That swelled the money supply, and with that swelling of money supply, we did see a commensurate rise in the value of commodities and the currency de-valued.

“Following on from that, we’re now seeing a second wave where we’re seeing monies from these programs not going directly to the workforce, but towards infrastructure programs. 

“Infrastructure is a major consumer of commodities, and with trillions of dollars now also going down that avenue, we’ve seen commodity prices reacting accordingly.”

The lower US dollar would also have a positive effect on commodities prices and China’s early recovery from the pandemic had reinstated significant demand, he said.

“On the supply side for commodities, we’ve seen very little in the way of mining universally around the world, actually suffering from any major impacts from the shutdown. 

“We’ve seen the odd country here and there, Brazil, Argentina, and perhaps the odd operations here and there in other countries but certainly here in Australia, there was very few disruptions.

“Generally, mining’s been seen as a critical industry, and much support was given to ensure that operations were kept open.”