Base metals prove their mettle in wild 2021 as gold and iron ore are dented

Dangerously low inventories is a theme across the market that will carry into next year – especially if the global economy continues to improve

Aluminium ingots at a stockyard in Wuxi, Jiangsu province, China. The metal rose more than 40 per cent in 2021. Bloomberg

Metals are capping off a tumultuous 2021 dominated by supply squeezes, China’s property-led economic slowdown and a global energy crisis that hints at more disruptions to come.

This year copper hit a record high as the pandemic scrambled supply and demand, but tin was the star performer as base metals marched higher. Gold bulls were ultimately left disappointed even as inflation raged. And iron ore suffered a boom-to-bust collapse from more than above $200 a tonne to below $100 on China’s waning appetite.

The contours of 2022’s other major drivers are already visible. Dangerously low inventories was a theme across metals that will carry into next year – especially if the global economy continues to improve. Beijing’s stimulus measures might put a floor under China’s steel woes, while US Federal Reserve tightening and stubborn inflation is a headwind elsewhere. Watch energy and the climate agenda, which should dominate aluminium in particular.

“Base metals performed outstandingly well this year, which is not surprising as they effectively made up ground that was lost during 2020,” said Gavin Wendt, founding director at Mine Life. “Next year should see a continuation of overall positive demand, but with greater price volatility as the supply side recovers."

Tin does not normally get much attention, but it was the big winner and perhaps a poster-child for metals in 2021. Prices have nearly doubled from a year ago, with an electronics boom fuelling demand and Covid-19 disruptions crimping supply. The LMEX index of six London-traded metals is heading for a seventh quarterly gain.

Iron ore was among the big losers of 2021, with the apparent end to China’s era of frenzied construction dragging on prices. But authorities are expected to implement fiscal stimulus and monetary policies to counter this year’s sharp slowdown. The latest manufacturing data for December already showed upward momentum intact.

Gold finishes the year a little below where it started, after a meandering 2021 as investors turned to riskier assets, including energy and industrial commodities. Fed tightening threatens more headwinds. Investors largely expect the Fed to raise interest rates three times in 2022, with some market participants expecting a hike as early as March.

For now, soaring energy costs in Europe continue to dominate the supply-side for base metals. In its latest impact on production, Alcoa said this week that it will halt a Spanish plant for two years on high energy costs. Aluminium has risen more than 40 per cent this year, and banks forecast a deeper deficit next year as the world’s decarbonisation push starts to tighten output worldwide.