Macro Developments

As of 6 August, about 201mn Covid-19 cases have been confirmed worldwide, and the death toll has surpassed 4.27mn, according to Johns Hopkins University data. The Biden administration is now weighing a plan to require all foreign visitors to be vaccinated. China imposed new travel restrictions across the nation as a delta-driven outbreak grew to over 500 cases in 15 provinces. At least 46 cities have advised against travelling, while tourist sites and cultural events have been cancelled. The World Health Organization called for a moratorium on booster shots to enable poorer countries to catch up in vaccination rates.

US non-farm payrolls grew by 943K in July, easily beating market consensus.

Source: US Bureau of Labor Statistics, MMSteelClub

The JP Morgan Global Manufacturing PMI index was at 55.4 in July, a tick below the 55.5 registered in June. The growth of the metals-intensive manufacturing sector could be slowing, as China’s activity was at its weakest for 17 months, and US manufacturing activity slowed for the second month in July to a 6-month low. The global manufacturing sector expanded at a robust clip at the start of the third quarter. However, rates of increase in output and new orders eased again, as record supply chain constraints stymied growth and drove up input prices. The headline PMI has signalled expansion in each of the past 13 months.

The NBS China manufacturing PMI was at a 17-month low falling to 50.4 in July (previous 50.9, expected 50.8). This was the weakest pace of increase in factory activity since the contraction in February 2020, amid the increasing concern around the Covid outbreak in Nanjing, severe flooding in central China and higher input costs. Similarly, the NBS China Non-Manufacturing PMI dropped to a five-month low of 53.3 in July (previous 53.5, expected 53.0). The Caixin Manufacturing PMI actual 50.3 (previous 51.3, expected 51.0). At far less than expectations, factories are barely expanding, and the service sector’s expansion is slowing. All of the numbers seem to be in the very low 50’s and therefore just above contraction territory.

The US reading pointed to the second consecutive month of slowing factory growth as new orders, production and supplier deliveries increased less while inventories contracted. Panelists’ companies and their supply chains continue to struggle to respond to strong demand due to difficulties in hiring and retaining direct labour.

Precious Metals

Precious metals came under pressure from a stronger USD and soaring US Treasury yields after a strong US jobs report, while platinum was pressured by easing supply concerns. Impala’s refined production has rebounded higher than pre-pandemic levels (3.07moz in FY19). In general, South African producers are now operating comfortably at pre-pandemic levels, noted Heraeus. Including the release of work-in-progress stock, refined platinum output from South Africa is expected to reach 4.5moz this year, up from 3.2moz in 2020 and 4.4moz in 2019, added Heraeus. Industrial demand for platinum has rebounded this year, but investment demand has been weaker than last year, as positioning data indicates. On NYMEX, platinum managed money positions switched to net shorts for the first time in eight months.

Source: CFTC, MMSteelClub

New-vehicle shortages finally outstrip demand in the US, which is impacting automotive palladium demand, said Heraeus. Sales of new vehicles are expected to reach 1,187,300 units in July, a 3.7% increase YoY but well below the sales pace seen earlier in 2021 (source: JD Power, LMC Automotive) as record low vehicle inventory starts to weigh on demand. Inventory levels are not likely to improve meaningfully moving into August as the shortage of new vehicles, a result of the ongoing chip shortage, shows no sign of easing. The latest estimate from AutoForecast Solutions calculates that the chip crisis has removed around 5.6 million vehicles from production in the year to date. The North American light-vehicle market has been particularly affected by the chip shortage, and automotive palladium demand has already been revised down by >100koz to account for this (>250koz globally). If the chip shortage and the resultant impact on vehicle production does not ease in H221, then this will partially offset the lower supply from Nornickel, said Heraeus.

Anglo American, in its 2021 interim results presentation, said PGMs are essential for decarbonising mobility today, and we think will play a key role in the hydrogen solution for the longer term. ICE/hybrid demand is set to grow to 2030. Some substitution of platinum for palladium is likely in autocatalysts over time. Over the longer-term, palladium tightness eases; potential platinum demand growth from hydrogen fuel cells & industrial uses. Supply is expected to be, at most, stable.

Gold came under heavy selling pressure following a better-than-expected US jobs report for July, which could bring forward tapering by the Fed. Gold prices were already under pressure after hawkish comments from Fed Vice Chair Richard Clarida, who suggested the central bank could start cutting back on bond purchases later in the year. With deeply negative real US yields, gold should find support as the opportunity cost is minimal.

Base Metals

Base metals remained in typical roller-coaster summer trading, albeit in very low volumes, pulled and pushed between supply-side issues, concerns over slowing global growth, and that the spread of the Delta variant could again lead to stricter lockdowns. It is very evident to see scale-up selling when prices are near the highs and dip-buying into pullbacks, but with an upward bias to prices, sentiment remains relatively bullish.

Source: JP Morgan, IHS Markit, MMSteelClub

Nickel eased away from its recent highs as Vale had officially reached an agreement with workers at the Sudbury mine in Canada, ending a two-month strike.

Aluminium was in the spotlight with prices at a new YTD peak on supply constraints, including the Russian
government’s export duty tax, together with power cuts in China’s Yunnan province and floods in Henan province.

There are signs that the shortage in the global semiconductor market is coming to an end, which should see a recovery of autos production, an important sector for metals usage. Electric vehicles, which all automakers are concentrating on for future growth, contain a multiple of metals such as copper, aluminium, nickel, and tin compared to traditional gasoline or diesel powered vehicles.

Copper is supported by the threat of strikes at mines in Chile. Caserones, Andina and Escondida copper mines are undergoing government mediation following strike votes. Copper gained more than 3.5% in July, but the smaller base metals performed better – tin (8.6%), nickel (7.3%) and lead (6.6%). Aluminium and zinc gained in July by 3.5% and 2.1%, respectively.

Supply constraints for various reasons (lockdowns, strike votes, power rationing) haven’t gone away, while worries
over slowing global growth persist. These factors lie behind consensus price forecasts indicating prices have peaked amid a higherfor-longer scenario. A Reuters poll of market analysts showed quarterly (Q421 – Q222), annual price (2021-2022) forecasts and market balances (2021 and 2022) for LME-traded base metals

The aerospace industry is on pace for a full recovery in the next three years, with demand already rebounding in H221 compared with Covid-19 pandemic-related lows, according to Arconic. It reported extrusion demand particularly improving, as well as signs of demand recovery for aluminium alloy sheet and plate from aerospace consumers.

The US Defense Logistics Agency (DLA) plans to offer the last of this fiscal year’s tin – 11.79t, adding to the 380t the DLA has offered to the US market since March amid prices setting new record highs almost every day.

Anglo American, in its results presentation, said the world needs the metals and minerals we produce to enable the transition to a low carbon economy and to meet other global consumer demand trends. Our growing copper production is key to electrification. Demand is robust in the long-term and accelerated decarbonisation presents further upside. On the supply-side, growth projects are available but ESG, technical and sovereign risks are rising.