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Global Metals Weekly

From full speed ahead to speed bumps

Apprehension and uncertainty over policy persists 07 July 2021

After the rally in 2020, price upside has been somewhat more subdued for most raw Commodities
materials this year. The headwinds have been driven by a confluence of factors, many of Global
which have been driven by apprehension and uncertainty over government policy. Most Global Commodity Research
visibly, China’s authorities are intent on tackling commodity inflation. In our view, the BofAS
measures taken can have a sustained impact on more segregated, domestic markets like Michael Widmer
steel, but they may not be as efficient for raw materials like iron ore and copper, where Commodity Strategist
MLI (UK)
the import dependency is high. Meanwhile, there has also been some volatility because +44 20 7996 0694
michael.widmer@bofa.com
central banks signal that they may no longer be as accommodative as last year. The
Francisco Blanch
latter headwinds are somewhat unusual, also because rising rates are usually Commodity & Deriv Strategist
accompanied by stronger growth. As such, while the fundamental backdrop remains BofAS
francisco.blanch@bofa.com
constructive, markets may remain choppy/ volatile going forward.
Warren Russell, CFA
Commodity Strategist
China: copper demand patchy, but to hold up BofAS
warren.russell@bofa.com
We expect steady demand growth in aluminium and copper this year. That said, the
Kyle Czirr, CFA
number of copper consuming sectors with YoY activity growth has fallen from six Commodity Strategist
towards the end of 2020 to just four now. Digging a bit deeper, cabling is one of the key BofAS
kyle.czirr@bofa.com
copper consuming sectors in China and spending by the grid has declined YoY in 2Q21;
Equity Research
similarly, operating rates at copper wire rod and cable producer remain below pre-COVID Jason Fairclough >>
levels, tying up with anecdotal evidence of cash flow concerns at manufacturers. This Research Analyst
MLI (UK)
has forced a range of measures, including a decline of inventories through the supply jason.fairclough@bofa.com
chain by almost 50%. Some of the headwinds may carry over into the second half of the Michael Jalonen, CFA >>
year, although buyers may ultimately be forced back into the market. At the same time, Research Analyst
Merrill Lynch (Canada)
we note ongoing discussion that China’s authorities are unlikely to tighten aggressively mike.jalonen@bofa.com
further. Matty Zhao >>
Research Analyst
Ex-China accelerating; updating forecasts Merrill Lynch (Hong Kong)
matty.zhao@bofa.com
World ex-China accounts for around 50% of metals demand, so the strength of activity Timna Tanners
in this region also matters for fundamentals. To that point, the last bull market in Research Analyst
BofAS
2016/17 was accompanied by a synchronous acceleration of activity in the US, Europe timna.tanners@bofa.com
and China. While China has come out of blocks first after the initial COVID-19 wave,
growth in DMs has been picking up, which should support many mined commodities.
Pulling it all together, we have marked-to-market forecasts for the mined raw materials
as move into 3Q21. Broadly speaking, we acknowledge recent headwinds for the base
metals, but remain constructive. Bulk commodity prices will likely remain elevated, but
iron ore in particular may start to decline. Gold continues to tread a fine line between
rates and inflation, while silver should benefit from an acceleration of growth. Platinum
and palladium will likely benefit from a normalisation of activity in the auto space.

>> Employed by a non-US affiliate of BofAS and is not registered/qualified as a research analyst
under the FINRA rules.
Refer to "Other Important Disclosures" for information on certain BofA Securities entities that take
responsibility for the information herein in particular jurisdictions.
BofA Securities does and seeks to do business with issuers covered in its research
reports. As a result, investors should be aware that the firm may have a conflict of
interest that could affect the objectivity of this report. Investors should consider this
report as only a single factor in making their investment decision.
Refer to important disclosures on page 14 to 15. 12300278

Timestamp: 07 July 2021 04:30PM EDT

From full speed ahead to speed bumps
Policy uncertainty persists
After the remarkable rally in 2020, the backdrop has been somewhat less bullish this
year. Headwinds have been driven by a confluence of factors, many of which are driven
by apprehension and uncertainty over government policies.

Nuanced view on China’s ability to influence prices

Table 1 picks up on this, touching on the intentions of China’s authorities to tackle
commodity inflation. Given the country’s high share in global demand, we agree that
China has some influence over prices. That said, we believe that the ability to swing
quotations ultimately depends on 1) the strength of fundamentals and 2) how China
interacts with international markets. To that point, it might be easier for the government
to cap any upside to prices in more segregated, domestic markets like steel, than in raw
materials like iron ore and copper, where the import dependency is relatively high.

Table 1: A nuanced view on the ability to influence commodity prices

The ability to influence commodity prices differs
Market dynamic Commodity/ asset Commentary

China has imposed an import ban Coal China has imposed an import ban on Australian met coal. As a result, domestic Chinese prices have rallied,
while quotations ex-China have fallen. Removing trade barriers would be an easy remedy to manage cost
pressures.

China tackles excess capacity
Steel and aluminium
Both industries faced a capacity overhang/ low profitability, while also having a high CO2 footprint. The
government is tackling capacity as demand, and hence prices, are strong. While steel trades on screen, prices
are often set bilaterally, i.e announced by the steel mills, and are also regional. As such, the government has
been, and will likely be, successful in pushing domestic prices down by putting pressure on its still mills.
Aluminium tends to be a less regional and more global market; as such, it might be harder to reduce prices
on a sustained basis.

China is a net importer Most base metals and iron ore China is a net importer of most base metals, with London Metal Exchange often setting the reference price
in physical contracts. As such, as long as demand globally remains strong (i.e. including China) and markets
are tight, it is unlikely China’s authorities will be able to push prices down on a sustained basis. Prices may
face headwinds on a sustained basis if China’s government chokes off the recovery.

Currency CNY China’s authorities, including the PBOC, have mentioned the possibility of using CNY as a tool to reduce
inflationary pressures from commodities that are priced in USD, although that approach was later denied.
Nonetheless, this could be a possible approach and may help domestically, but terms of trades also matter,
so manufacturers would in all likelihood also have to adjust export prices to maintain competitiveness.

Source: BofA Global Research

BofA GLOBAL RESEARCH

Monetary policy is being normalised

Beyond that, many commodities have also faced headwinds over monetary policy. This
was visible after the recent FOMC meeting, which was perceived as relatively hawkish,
mirrored also in comments from our US economists (see Morning Market Tidbits: A
welcome note of caution from the Fed 17 June 2021):

• The forecast suggests some of the inflation acceleration is likely sustained and rate
hikes could come as soon as next year.

• In his press conference Chair Powell was much more willing to acknowledge rather
than downplay positive news.

The correction especially in the base metals is somewhat peculiar in our view, also
because tighter monetary policy has historically been accompanied by higher prices eg
of copper (Exhibit 1). The positive correlation between rates and industrial commodities
can be justified because both rally when the economy accelerates (Exhibit 1).

2 Global Metals Weekly | 07 July 2021

 Exhibit 1: Copper prices and US policy rates Exhibit 2: Copper and 2s10s
Copper prices and policy rates are often positively correlated The relationship between 2s10s, another growth proxy, and copper has been
more patchy

12,000 7.0 12,000 3.5

US$/t Percent US$/t Percent
6.0 3.0
10,000 10,000
2.5
5.0
8,000 8,000 2.0
4.0
6,000 1.5
3.0 6,000
1.0
4,000
2.0 4,000 0.5
2,000 1.0 0.0
2,000
0 0.0 -0.5
1993 1997 2001 2005 2009 2013 2017 2021 0 -1.0
1993 1997 2001 2005 2009 2013 2017 2021
Copper (lhs) US, policy rate (rhs) Copper (lhs) US, 2s10s (rhs)
Source: Bloomberg, BofA Global Research Source: Bloomberg, BofA Global Research
BofA GLOBAL RESEARCH BofA GLOBAL RESEARCH

That said, authorities have had an unusual monetary policy stance in the wake of the
Great Financial Crisis. This is also reflected in Exhibit 3 and Exhibit 4 which show that
economies around the world have been flooded with liquidity during the COVID-19
pandemic. Some of that might have spilled over into commodity markets, so a
normalisation of economic and central bank activity might boost volatility in the coming
months; indeed, we expect markets to remain choppy.

Exhibit 3: M2 and copper prices Exhibit 4: M2 in different regions

Copper prices react with a lag to changes in M2 Money supply growth has been slowing

175% 15% 40%

YoY chge US Japan
150% YoY chge YoY chge 14%
125% 13% Eurozone China
30%
100% 12%
75% 11%
50% 10% 20%
25% 9%
0% 8%
-25% 7% 10%
-50% 6%
-75% 5%
00 01 03 04 05 06 08 09 10 11 13 14 15 16 18 19 20 0%
Copper, lagged by 6 months (lhs) M2, Big-4 (rhs) Jan-01 Jan-04 Jan-07 Jan-10 Jan-13 Jan-16 Jan-19

Source: Bloomberg, BofA Global Research Source: Bloomberg, BofA Global Research
BofA GLOBAL RESEARCH BofA GLOBAL RESEARCH

At the same time, monetary institutions can remove support because economies are
opening up and fiscal spending gets to work. As such, demand should remain supported
until well into 2022.

Focussing on China, the government proactively supported the economy in 2020,

mirrored in record amounts of total social financing. Yet, the policy stance has become
less supportive (Exhibit 5), heavily influenced by reduced issuance of local government
bonds, as well as lower lending to property developers and home buyers. Of course,
these sectors are important for raw materials offtake. Notwithstanding, it is at the same
time worth noting that new loans have overall remained elevated.

Going forward, our colleagues in China’s economics team outline that concerns, including
(i) recent consumption weakness in consumer goods (e.g., air conditioners, cell phones,
cars); (ii) a slowdown in infrastructure investment on reduced fiscal support; (iii) softer

Global Metals Weekly | 07 July 2021 3

credit demand towards the end of 1Q21; and (iv) headwind to export from faster CNY
appreciation, suggest that the government might be more cautious in tightening (see
China Economic Watch: Policy tightening likely delayed by growth-inflation nexus
deterioration 18 June 2021), so some of the recent headwinds may ease.

Exhibit 5: China, total social financing Exhibit 6: China, new loans

TSF is running below the highs seen last year New loans have been holding up
6000 4500
Bn CNY Bn CNY

4000 3000

2000 1500

0 0
Jan Feb Mar Apr May Jun Jul Aug Sept Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sept Oct Nov Dec
Prior 5 year range Average, past 5 years Prior 5 year range Average, past 5 years
2019 2020 2020 2021
Source: Bloomberg, BofA Global Research Source: Bloomberg, BofA Global Research
BofA GLOBAL RESEARCH BofA GLOBAL RESEARCH

China: copper demand patchy, but to hold up

Exhibit 7 and Exhibit 8 show the estimates from one of our models on how China’s
aluminium and copper demand growth might evolve respectively. Exhibit 9 shows the
performance in key economic sectors underlying some of these models and the data
outlines that offtake should hold up this year, as economic activity remains supported.

Exhibit 7: China, aluminium demand Exhibit 8: China, copper demand

Consumption growth is set to accelerate this year Consumption growth is set to accelerate this year

45% 25%
YoY change Actual
40% YoY change 20%
Actual Modelled Modelled
35%
30% 15%
25%
10%
20%
15% 5%
10%
0%
5%
0% -5%
010203040506070809101112131415161718192021E22E 010203040506070809101112131415161718192021E22E

Source: CRU, Woodmac, Bloomberg, BofA Global Research Source: CRU, Woodmac, Bloomberg, BofA Global Research
BofA GLOBAL RESEARCH BofA GLOBAL RESEARCH

Activity data has become more patchy

That said, we acknowledge that the fundamental backdrop has become patchier. Beyond
base effects, this is also mirrored by Exhibit 10, which highlights that the number of
copper consuming sectors with YoY activity growth has fallen from six late last year to
just 4 now.

4 Global Metals Weekly | 07 July 2021

 Exhibit 9: China, GDP growth broken down into sectors Exhibit 10: China, underlying activity in copper-using sectors
Average FY growth is accelerating in every sector in 2021 Activity is expanding in only 4 out of 6 sectors
Retail Copper,
FAI sales Imports Exports YoY 200%
Copper,
2012 20.6% 14.3% 4.3% 7.9% -10%
2013 19.6% 13.1% 7.2% 7.8% -8% 150% YoY chge
2014 15.7% 12.0% 0.5% 6.0% -7%
2015 10.0% 10.7% -14.3% -2.9% -20% 100%
2016 8.1% 10.4% -5.5% -7.7% -11%
2017 7.2% 10.2% 16.1% 7.9% 27%
50%
2018 5.9% 9.0% 15.8% 9.9% 6%
2019 5.4% 8.0% -2.7% 0.5% -8%
0%
2020 2.9% -3.9% -0.7% 3.6% 3% -50%
2021 8.5% 9.2% 19.5% 19.0%
2022 7.5% 8.0% 9.5% 7.0% -100%
Source: BofA Global Research 0 1 2 3 4 5 6
BofA GLOBAL RESEARCH Count of copper using sectors with YoY activity
expansion
Source: Bloomberg, BofA Global Research
BofA GLOBAL RESEARCH

Cable and wire rod producers have been under pressure

Exhibit 11 takes this a step further, outlining how importance the breadth of activity
growth is for the mined commodities. Digging a bit deeper, cabling is one of the key
copper consuming sectors in China and Exhibit 12 outlines that spending by the grid has
declined YoY in 2Q21.

Exhibit 11: China, underlying activity in copper-using sectors Exhibit 12: China grid spending
The strength of underlying activity has become more patchy China’s grid has reduced spending compared to 2020

Copper price, YoY chge (lhs) 150% 200

Number of expanding sectors (3mMA, rhs) BN CNY (rhs) YoY chge (lhs) 180
80% 6
100% 160
5 140
40% 4 50% 120
100
3 0% 80
0% 2 60
-50% 40
1
20
-40% 0 -100% 0
Jan-11 Jul-12 Jan-14 Jul-15 Jan-17 Jul-18 Jan-20 10 11 12 13 14 15 16 17 18 19 20
Source: Bloomberg, BofA Global Research Source: Bloomberg, BofA Global Research
BofA GLOBAL RESEARCH BofA GLOBAL RESEARCH

Exhibit 13 looks at this from a different angle, capturing operating rates at copper wire
rod and cable producer. While the chart confirms the usual seasonal rebound,
manufacturer keep running their facilities below the pre-COVID levels.

Global Metals Weekly | 07 July 2021 5

 Exhibit 13: China Copper Wire and Cable Producers, Operating Rates Exhibit 14: US and China, copper premia
Capacity utilisation rates remain below pre-COVID levels China’s physical copper market has been subdued
120 120 200
% Shanghai, US$/t (lhs) US, US$/t (rhs)
100
185
80 80

60 170

40 40
155
20

0 0 140
Jun-15 Jun-16 Jun-17 Jun-18 Jun-19 Jun-20 Jun-21 Feb-20 May-20 Aug-20 Nov-20 Feb-21 May-21

Source: Bloomberg, BofA Global Research Source: Bloomberg, BofA Global Research
BofA GLOBAL RESEARCH BofA GLOBAL RESEARCH

In our view, this ties up with anecdotal evidence of cash flow concerns at market
participants, which has forced a range of measures, including a reduction of inventories
through the supply chain, one reason, China’s copper premia1 have fallen (Exhibit 14).
Sticking with inventories, Exhibit 15 highlights that stocks at consumers have fallen by
almost 80Kt YTD. As such, the scope for further inventory declines through the supply
chain may be limited. At the same time, it is worth noting that China’s total inventories
remain below seasonal levels (Exhibit 16). Hence, while China’s State Reserve Bureau
(SRB) may hold between 1.5Mt and 2Mt of stocks, some of this material looks to be old,
so may not be fit for immediate consumption. As such, the country’s consumers and
traders may be forced back into the market later this year.

Exhibit 15: China, consumer inventories Exhibit 16: China, bonded and exchange inventories
Consumer inventories have declined rapidly China has restocked through 2H, but inventories remain comparatively low

240 1200
'000 '000
220 tonnes tonnes
200
800
180
160
140 400
120
100 0
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
Prior 5 year range Prior 5 year average Prior 5 year range Prior 5 year average
2020 2021 2020 2021
Source: SMM, Bloomberg, BofA Global Research Source: CRU, BofA Global Research
BofA GLOBAL RESEARCH BofA GLOBAL RESEARCH

Copper imports may look challenged on base effects

Copper imports may also face headwinds in summer when compared to 2020, although
these challenges might be partially influenced by base effects (Exhibit 17 and Exhibit
18). At the same time though, we expect that renewed support from the country’s

1
Physical premia have to be paid on top of the quoted LME price; they can include
items such as transportation cost and insurance. However, they are also an indicator
for the tightness of regional markets

6 Global Metals Weekly | 07 July 2021

authorities, along low inventories through the supply chain, may ultimately bring buyers
back into the market, thereby supporting fundamentals and prices.

Exhibit 17: China, net refined copper imports Exhibit 18: China, apparent copper demand (refined production
+imports-exports and stock changes)
While China’s copper imports have been holding, base effects are kicking in Apparent copper demand has been weaker

600 '000 40%

YoY chge,
500 tonnes 30%
3mMA

400
20%
300
10%
200
100 0%

0 -10%
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
Prior 5 year range Prior 5 year average -20%
2020 2021 Jan-13 Jan-14 Jan-15 Jan-16 Jan-17 Jan-18 Jan-19 Jan-20 Jan-21

Source: Bloomberg, BofA Global Research Source: Bloomberg, BofA Global Research
BofA GLOBAL RESEARCH BofA GLOBAL RESEARCH

World ex China is just accelerating

World ex-China accounts for around 50% of metals demand, so activity in this region
also matters for fundamentals. To that point, the last bull market in 2016/17 was
accompanied by a synchronous acceleration of growth in the US, Europe and China.
While China has come out of blocks first when the initial COVID-19 wave subsided,
activity in the DMs is now picking up (Exhibit 19 and Exhibit 20).

Exhibit 19: US, construction activity and LDV sales Exhibit 20: Europe, construction activity and LDV sales
Activity has been strong coming out of Covid-19 This year’s economic rebound is set to carry over into 2022

18 6
Construction output, YoY chge % LDV sales, M units
16
14 4
12
10 2
8
6 0
4
2 -2
0
2Q 21 3Q 21 4Q 21 1Q 22 2Q 22 3Q 22 4Q 22 -4
Nonresidential Investment, % SAAR
Residential Investment, % SAAR -6
Light Vehicle Sales (Millions SAAR) 2018 2019 2020 2021 2022 2023
Source: BofA Global Research Source: Euroconstruct, BofA Global Research
BofA GLOBAL RESEARCH BofA GLOBAL RESEARCH

Exhibit 21 and Exhibit 22 pick up on this, showing estimates from one set of demand
models, which suggest that US aluminium and copper consumption growth will rebound
this year. Of course, these numbers do not factor in a potential US infrastructure
stimulus, which might be finalized by year-end and could support metals demand further
next year.

Global Metals Weekly | 07 July 2021 7

 Exhibit 21: US, aluminium demand Exhibit 22: US, copper demand
Aluminium demand should strengthen this year Copper demand also looks to rebound

20% 12%
YoY change
YoY change 10%
15%
8%
10% 6%
4%
5%
2%
0% 0%
-2%
-5% -4%
Actual Modelled Actual Modelled
-10% -6%
96 98 00 02 04 06 08 10 12 14 16 18 20 22E 96 98 00 02 04 06 08 10 12 14 16 18 20 22E
Source: CRU, Woodmac, BofA Global Research Source: CRU, Woodmac, BofA Global Research
BofA GLOBAL RESEARCH BofA GLOBAL RESEARCH

The picture has been similar in Europe, with activity dropping sharply in 2020. Yet,
growth is now rebounding and that recovery should extend into 2022, albeit at slightly
more subdued rates.

Exhibit 23: Europe, aluminium demand Exhibit 24: Europe, copper demand
Europe’s aluminium consumption should rebound Copper demand in Europe is also set to increase

16% Actual Modelled

12%
12% YoY chge YoY chge
8%
8%
4%
4%
0% 0%
-4% -4%
-8% -8%
-12% -12%
-16% -16%
Actual Modelled
-20% -20%
94 96 98 00 02 04 06 08 10 12 14 16 18 20 22 94 96 98 00 02 04 06 08 10 12 14 16 18 20 22

Source: CRU, ICSG, Woodmac, BofA Global Research Source: CRU, ICSG, Woodmac, BofA Global Research
BofA GLOBAL RESEARCH BofA GLOBAL RESEARCH

Quarterly forecast update

Moving into 3Q21, we have marked-to-market forecasts for the mined commodities.

As to the base metals, we continue to believe that the aluminium supply chain is burning
the candle at both ends. Demand growth has remained solid, but China has put a
capacity cap on its smelters, while operators in World ex-China remain reluctant to
invest in new smelters with incentive prices of+$2,500/t ($1.13/lb). As a result, we
expect the metal to ultimately hit a new all-time high at +3,500/t ($1.59/lb). Meanwhile,
while copper demand is getting stronger ex-China and decarbonisation will likely lift
potential consumption growth by 50bp medium-term, concerns over China have recently
capped prices and those headwinds may carry over into autumn; yet, stronger demand
ex-China should then lift the red metal. Nickel is also a MIFT (metal important for future
technologies) but is handicapped by production increases in Indonesia. Zinc could push
higher still as the project pipeline is relatively empty.

Gold has been driven by real rates in the past 6 months. While a pick-up of inflation
should bring new buyers into the market, tighter monetary policy is set to keep the

8 Global Metals Weekly | 07 July 2021

metal within recent ranges. Silver demand should benefit from de-carbonisation.
Palladium has rallied, influenced by production problems at Norilsk Nickel, but the metal
lives on borrowed time, given 90% of demand is driven by internal combustion engine
vehicles (ICEs). Meanwhile, platinum demand should increase from substitution and the
metal is also key in the hydrogen economy; hence, we see further upside from here,
especially when recent disruptions in the auto industry subside.

Steel in Europe, the US and China has been among the best performing raw materials
YTD. Dynamics differ slightly between the regions, but ultimately strong demand has
met carefully managed capacity, pushing lead times and prices higher. Yet, upside to
quotations will likely subside also because supply is set to increase e.g. in the US.
Continued strong activity at China’s steel mills has pulled up iron ore and prices remain
supported for now, but should start to decline as more supply hits the market from Brazil
and recent disruptions in Australia subside. Thermal coal has risen over a reopening of
the global economy.

Exhibit 25: BofA price forecasts

We are mark-to-marking base and precious metals forecasts
2021E 2022E
New Old Change New Old Change
Base metals
Aluminium $/t 2,454 2,455 -0.0% 2,875 2,875 0.0%
c/lb 111 111 -0.0% 130 130 0.3%
Copper $/t 9,868 10,572 -6.7% 12,500 12,750 -2.0%
c/lb 448 480 -6.7% 567 578 -1.9%
Lead $/t 2,070 2,072 -0.1% 2,251 2,251 0.0%
c/lb 94 94 -0.1% 102 102 0.1%
Nickel $/t 17,436 17,456 -0.1% 15,250 15,250 0.0%
c/lb 791 792 -0.1% 692 692 -0.0%
Zinc $/t 2,979 2,976 0.1% 2,750 2,750 0.0%
c/lb 135 135 0.1% 125 125 -0.2%
Precious metals
Gold nominal, $/oz 1,828 1,843 -0.8% 1,850 1,850 0.0%
real, $/oz 1,828 1,843 -0.8% 1,805 1,805 -0.0%
Silver nominal, $/oz 27.71 28.84 -3.9% 31.0 31 0.0%
real, $/oz 27.71 28.84 -3.9% 30.2 30.2 0.1%
Platinum $/oz 1,287 1,317 -2.2% 1,450 1,450 0.0%
Palladium $/oz 2,788 2,841 -1.9% 2,125 2,125 0.0%
Bulk Commodities
Iron ore fines $/t cif 188 172 9.5% 165 144 14.6%
Hard coking coal $/t fob 168 135 24.4% 180 128 40.6%
Semi-soft $/t fob 142 79 79.7% 134 108 24.0%
Thermal Coal $/t fob 96 88 8.7% 84 84 -0.6%
Exotic metals and
minor metals
Alumina $/t 309 310 -0.3% 330 330 -0.0%
Cobalt $/lb 20.0 19.6 1.9% 20.5 20 2.5%
Uranium $/lb 30.7 30.7 0.1% 38.0 38 0.0%
Molybdenum $/lb 13.6 12.2 11.5% 14.3 12.5 14.6%
Manganese ore $/lb 5.0 4.9 2.1% 5.0 4.9 1.3%
Steel
Northern Europe $/t 893 893 0.0% 669 669 0.0%
North America $/t 1,202 1,202 0.0% 600 600 0.0%
China $/t 704 704 0.0% 633 633 0.0%
Note: Steel North America in short tons
Source: BofA Global Research
BofA GLOBAL RESEARCH

Global Metals Weekly | 07 July 2021 9

Appendix
Table 2: Price forecasts, fundamental drivers and risks
We are bullish a range of cyclical commodities
Metal 2021E 2022E Fundamental drivers Risks (D = downside; U = upside)
Aluminium $2,454/t $2,875/t • China has exported 4.5-5mt annualised of aluminium units. While • D: No production discipline in China/ World ex-China
111c/lb 130c/lb these shipments are not strictly primary aluminium, they have • D: China exports more
nonetheless subdued fundamentals in World ex-China. Falling • U: Smelter restraint and/or production disruptions reduce output.
exports would be bullish. • U: Stronger than anticipated demand growth
• Surpluses locked up in financing deals
• Capacity growth in China is slowing
• We expect a balanced market for 2021.
Copper $9,868/t $12, • Demand in China rebounded impressively in 2020, but has been • D: China re-exports metal
448c/lb 500/t slowing; yet offtake ex-China should accelerate • D: global demand slows sharply into next year
567c/lb • Supply additions are set to be limited at the same time • U: Strong restocking through the supply chain on improved confidence
• We expect a small deficit for 2021. • U: Continued production disruptions in coming quarters
Lead $2,070t $2,251/t • There are no immediate scrap and concentrates shortages, • D: Destocking in China or higher lead exports from the country.
94c/lb 102c/lb suggesting the market could flip back into surplus • U: Strong seasonal demand for replacement batteries after cold/ hot winter/
• China’s demand has slowed structurally, as the ebike market has summer months
matured.
Nickel $17,4366/t$15,250/t • Nickel demand from electric vehicle producers should rise in the • D: NPI producers don’t close shop; ore inventories last for longer and more
791c/lb 692c/lb coming years, yet, more NPI being converted to nickel sulphate ores are imported form the Philippines.
• Indonesia is still flooding the global nickel market with nickel • D: Faster ramp-up of Indonesian NPI production
units, which should keep prices in check • D: Stainless steel demand remains subdued
• We expect a surplus for 2021
Zinc $2,979/t $2,750/t • The market has rebalanced on significant production curtailments • D: Unreported inventories exist on the zinc market. More metal could
135c/lb 125c/lb over Covid-19. become available.
• Supply is set to come back in 2021, but demand should also • D: The zinc market is fragmented. There is evidence that miners, especially
rebound, limiting any supply overhang in China, could consider further output increases.
• Zinc may remain an underperformer, but immediate downside
more limited
Gold $1,828/oz $1,850/oz • Gold has been a trade on US rates and the volume of negative • D: Deterioration of investor sentiment
yielding assets. • D: Real rates become more positive; sustained USD rally.
• Stronger inflation would be bearish gold through rising nominal • D: High gold prices deter buyers of physical gold; increased scrap supply.
rates, unless CBs cap rates; more aggressive Fed would help
• A weaker USD could also push gold higher.
Silver $27.71/oz $31.00/oz • The silver market has rebalanced on production discipline and • U: Investors returning to the market
demand from new applications including solar panels • U: China’s imports to rise
• Industrial demand to rebound post COVID-19. • D: ETF liquidation
• If more spending on solar panels come through, silver should rally • D: More supply
above $31/oz.
Platinum $1,287/oz $1,450/oz • Palladium remains in deficit, so prices should remain well • D: Jewellery demand suffers due to rising prices.
Palladium $2,788/oz $2,125/oz supported • D: In palladium, the risk of deliveries from Russian stockpiles has not gone
• While platinum is set to remain in surplus in 2021, the hydrogen away
economy and substitution should increasingly stabilise prices. • D: Demand from key buyers like Europe not increasing
• U: Production disruptions reduce availability of PT and PD
Iron Ore $188/t CIF $165/t • Vale’s issues have been defining the iron ore market for a whole • D: China’s steel production slowing sharply
CIF and the company is set to increase production further in 2021. • U: Stronger Chinese demand, for instance due to restocking
• These units may to some extent be absorbed by steady activity at • U: Mine closures/ slowdown in production increases
steel mills in China and a rebound in activity in Europe
• Scope for price strength early in 2021, before declines
HCC $170/t $180/t • Thermal coal prices should rebound as economies open, but • D: Lack of supply discipline
Thermal $96t $84/t meaningful rallies look unlikely • U: Chinese steel production stronger (HCC)
coal • Meanwhile, met coal should rebound despite China’s import ban, • U: mine closures
as the country needs to source feedstock abroad; European mills
also set to increase purchases.
Brent and $68/bbl $75/bbl • We project Brent and WTI to average $68/bbl and $65/bbl, respectively, in 2021 and $75 and $71 in 2022.
WTI crude $65/bbl $71/bbl • Our supply and demand forecasts suggest a 1.4mn b/d deficit in 2021 followed by a 400k b/d deficit in 2022.
oil • We forecast global demand will rebound nearly 6mn b/d YoY in 2021 after falling 8.7mn b/d in 2020.
• During 2021-23, we forecast demand will grow by more than 9mn b/d, the fastest pace since the 1970s.
• Non-OPEC supply should grow roughly 700k b/d YoY in 2021 and an additional 2mn b/d+ in 2022.
• We project total US supply will remain flattish in 2021 and rise more than 1.5mn b/d in 2022.
• OPEC supplies are set to rise 600k b/d in 2021 and 2.1mn b/d in 2022 as OPEC+ adds back supply and as Iran returns
Colours indicate our stance on each commodity: Green = bullish, Yellow = neutral, Red = cautious.
Source: BofA Global Research estimates
BofA GLOBAL RESEARCH

10 Global Metals Weekly | 07 July 2021

Supply and demand balances
Exhibit 26: Aluminium supply and demand balance Exhibit 27: Alumina supply and demand balance
The aluminium market is set to tighten 2017-2021E Alumina should remain well supplied 2017-2021E
'000 tonnes 2018 2019 2020 2021E 2022E '000 tonnes 2018 2019 2020 2021E 2022E
Global production 63969 63740 65502 68929 71823 Global production 121,918 123,042 126,876 137,041 141,919
YoY change 1.2% -0.4% 2.8% 5.2% 4.2% YoY change 0.26% 0.92% 3.12% 8.01% 3.56%
Global consumption 64956 65357 63979 70501 74469 Global consumption 125,380 124,931 124,455 130,966 136,463
YoY change 3.0% 0.6% -2.1% 10.2% 5.6% YoY change 1.15% -0.36% -0.38% 5.23% 4.20%
Balance -987 -1617 1523 -1572 -2646 Balance -3,461 -1,889 2,422 6,075 5,457
Market inventories 11163 10037 12390 10819 8172 Capacity utilisation rate 81.6% 80.0% 80.2% 84.5% 84.8%
Weeks of world demand 8.9 8.0 10.1 8.0 5.7 Alumina spot FOB
484 328 271 318 330
LME Cash ($/t) 2110 1813 1704 2455 2875 Australia ($/t)
LME Cash (c/lb) 96 82 77 111 130 Source: company reports, CRU, BofA Global Research
Source: SNL, Woodmac, CRU, Bloomberg, company reports, IAI, BofA Global Research BofA GLOBAL RESEARCH
BofA GLOBAL RESEARCH

Exhibit 28: Copper supply and demand balance Exhibit 29: Lead supply and demand balance
Copper will likely be in deficit this year 2017-2021E There should be no lead shortages 2017-2021E
'000 tonnes 2018 2019 2020 2021E 2022E '000 tonnes 2018 2019 2020 2021E 2022E
Global production 23507 23444 23389 24622 25647 Global production 12807 13191 12677 13160 14054
YoY change 2.0% -0.3% -0.2% 5.3% 4.2% YoY change 0.7% 3.0% -3.9% 3.8% 6.8%
Global consumption 23654 23681 23528 24866 26084 Global consumption 12771 12847 12388 13340 13880
YoY change 2.5% 0.1% -0.6% 5.7% 4.9% YoY change 1.5% 0.6% -3.6% 7.7% 4.0%
Balance -147 -237 -139 -244 -437 Balance 35 344 290 -180 174
Market inventories 1583 1351 1212 969 531 Market inventories 489 833 1123 943 0
Weeks of world demand 3.5 3.0 2.7 2.0 1.1 Weeks of world demand 2.0 3.4 4.7 3.7 0.0
LME Cash ($/t) 6532 5995 6175 10572 12750 LME Cash ($/t) 2241 1954 1824 2072 2251
LME Cash (c/lb) 296 272 280 480 578 LME Cash (c/lb) 102 89 83 94 102
Source: SNL, Woodmac, CRU, Bloomberg, company reports, ICSG, BofA Global Research Source: SNL, Woodmac, CRU, Bloomberg, company reports, ILZSG, BofA Global Research
BofA GLOBAL RESEARCH BofA GLOBAL RESEARCH

Exhibit 30: Nickel supply and demand balance Exhibit 31: Zinc supply and demand balance
The nickel market remains bifurcated over NPI 2017-2021E Zinc surpluses will likely remain small 2017-2021E
'000 tonnes 2018 2019 2020 2021E 2022E '000 tonnes 2018 2019 2020 2021E 2022E
Global production 2225 2391 2522 2629 2914 Global production 13252 13372 13754 14400 14600
YoY change 5.9% 7.4% 5.5% 4.2% 10.9% YoY change -2.1% 0.9% 2.9% 4.7% 1.4%
Global consumption 2216 2309 2235 2535 2791 Global consumption 14144 13861 13271 14291 14773
YoY change 4.4% 4.2% -3.2% 13.4% 10.1% YoY change -0.7% -2.0% -4.3% 7.7% 3.4%
Balance, incl. NPI Balance -892 -489 484 109 -173
oversupply 9 81 287 94 123 Market inventories 644 589 758 867 693
Balance, excl. NPI Weeks of world demand 2.4 2.2 3.0 3.2 2.4
oversupply 9 81 147 10 -16 LME Cash ($/t) 2923 2404 2265 2976 2750
Market inventories 328 307 377 392 0 LME Cash (c/lb) 133 109 103 135 125
Weeks of world demand 7.7 6.9 8.8 8.0 0.0 Source: SNL, Woodmac, CRU, Bloomberg, company reports, ILZSG, BofA Global Research
LME price ($/t) 13130 13165 13783 17456 15250 BofA GLOBAL RESEARCH
LME price (c/lb) 596 597 625 792 692
Source: SNL, Woodmac, CRU, Bloomberg, company reports, INSG, BofA Global Research
BofA GLOBAL RESEARCH

Exhibit 32: Platinum supply and demand balance Exhibit 33: Palladium supply and demand balance
Platinum set to be balanced 2017-2021E Palladium should remain undersupplied 2017-2021E
'000 ounces 2018 2019 2020 2021E 2022E '000 ounces 2018 2019 2020 2021E 2022E
Global production 7929 7813 6323 8019 8505 Global production 9,753 10,233 9,009 10,386 11,072
YoY change -1.2% -1.5% -19.1% 26.8% 6.1% YoY change 4.0% 4.9% -12.0% 15.3% 6.6%
Global consumption 8059 8593 7486 8206 8474 Global consumption 10,324 11,418 10,007 11,299 11,166
YoY change 0.3% 6.6% -12.9% 9.6% 3.3% YoY change 2.6% 10.6% -12.4% 12.9% -1.2%
Balance -130 -780 -1162 -187 32 Balance -571 -1,185 -998 -913 -95
Spot ($/oz) 880 865 886 1317 1450 Spot ($/oz) 1,030 1,540 2,201 2,841 2,125
Source: Matthey, company reports, BofA Global Research Source: Matthey, company reports, BofA Global Research
BofA GLOBAL RESEARCH BofA GLOBAL RESEARCH

Global Metals Weekly | 07 July 2021 11

 Exhibit 34: BofA Price forecasts
BofA’s quarterly and annual forecasts for base metals, precious metals, bulk materials, minor metals, steel and energy
Commodity
price forecasts
Current 3Q21E 4Q21E 1Q22E 2Q22E 3Q22E 4Q22E 2020E 2021E 2022E 2023E 2024E 2025E LT price
Base metals
Aluminium US$/t 2,556 2,600 2,750 2,750 2,750 3,000 3,000 1,704 2,454 2,875 3,250 2,989 2,093 2,199
USc/lb 116 118 125 125 125 136 136 77 111 130 147 136 95 100
Copper US$/t 9,511 9,750 11,500 13,000 12,500 12,500 12,000 6,175 9,868 12,500 10,000 9,240 8,479 7,719
USc/lb 431 442 522 590 567 567 544 280 448 567 454 419 385 350
Lead US$/t 2,287 2,100 2,000 2,251 2,251 2,251 2,251 1,824 2,070 2,251 2,297 2,348 2,398 2,448
USc/lb 104 95 91 102 102 102 102 83 94 102 104 106 109 111
Nickel US$/t 18,412 17,500 16,500 16,000 15,000 15,000 15,000 13,783 17,436 15,250 15,000 15,034 15,067 15,101
USc/lb 835 794 748 726 680 680 680 625 791 692 680 682 683 685
Zinc US$/t 2,946 3,250 3,000 3,000 2,750 2,750 2,500 2,265 2,979 2,750 2,500 2,546 2,591 2,637
USc/lb 134 147 136 136 125 125 113 103 135 125 113 115 118 120
Precious metals
Gold, nominal US$/oz 1,792 1,800 1,900 1,800 1,800 1,900 1,900 1,771 1,828 1,850 1,950 1,961 1,971 1,980
Gold, real US$/oz 1,800 1,900 1,756 1,756 1,854 1,854 1,771 1,828 1,805 1,856 1,821 1,785 1,750
Silver, nominal US$/oz 26.06 27.50 30.00 31.00 31.00 31.00 31.00 20.52 27.71 31.00 32.50 31.18 29.78 28.29
Silver, real US$/oz 27.50 30.00 30.24 30.24 30.24 30.24 20.52 27.71 30.24 30.93 28.96 26.98 25.00
Platinum US$/oz 1,081 1,350 1,450 1,400 1,400 1,500 1,500 886 1,287 1,450 1,500 1,465 1,430 1,395
Palladium US$/oz 2,785 3,250 2,750 2,250 2,250 2,000 2,000 2,201 2,788 2,125 1,750 1,632 1,513 1,395

Current 3Q21E 4Q21E 1Q22E 2Q22E 3Q22E 4Q22E 2020E 2021E 2022E 2023E 2024E 2025E LT price
Bulk
Commodities
Hard coking coal US$/t fob 200.0 200.0 200.0 180.0 180.0 180.0 180.0 131.4 167.9 180.0 172.7 165.4 158.1 150.8
Semi-soft US$/t fob 126.2 175.0 150.0 133.9 133.9 133.9 133.9 77.9 142.0 133.9 125.8 117.7 109.6 101.5
Thermal Coal US$/t fob 146.8 105.0 90.0 86.0 84.0 82.0 82.0 60.3 95.6 83.5 75.7 77.5 79.3 81.2
Iron ore fines US$/t CIF 222.0 210.0 180.0 170.0 165.0 160.0 165.0 108.6 188.3 165.0 145.0 124.9 104.9 84.9

Exotic commodities
Alumina $/t 286 310 350 350 323 323 323 271 309 330 331 340 348 357
Uranium $/lb 33.00 32.00 38.00 38.00 38.00 38.00 29.58 30.75 38.00 41.00 43.00 45.00 46.13
Molybdenum $/lb 18.75 14.33 14.33 14.33 14.33 14.33 14.33 8.68 13.60 14.33 14.33 13.23 12.13 11.04
Cobalt $/lb 23.10 20.50 20.50 20.50 20.50 20.50 20.50 15.18 19.97 20.50 20.50 19.80 19.09 18.39
Manganese ore $/dmtu 5.10 4.97 4.97 4.97 4.97 4.97 4.97 4.64 5.00 4.97 4.97 5.24 5.52 5.80

Steel, HRC
HRC, Europe US$/t 1,254 471 893 669
HRC, US US$/t 1,966 632 1,202 600
HRC, China US$/t 888 556 704 633

Energy Current 3Q21E 4Q21E 1Q22E 2Q22E 3Q22E 4Q22E 2020E 2021E 2022E 2023E 2024E 2025E LT price
Brent US$/bbl 74.4 72.0 68.0 70.0 73.0 83.0 73.0 43.8 67.5 74.8 60.0 60.0 60.0 60.0
WTI US$/bbl 73.3 69.0 65.0 66.0 69.0 79.0 69.0 39.8 64.5 70.8 57.0 57.0 57.0 57.0
Henry Hub US$/MMBtu 3.63 2.75 2.85 2.70 2.45 2.55 2.70 2.13 2.74 2.60 2.60 2.60 2.60 2.60
Note: quarterly energy forecasts are period-end, rest are period averages; Steel North America in short tons
Source: BofA Global Research
BofA GLOBAL RESEARCH

12 Global Metals Weekly | 07 July 2021

Key Market Data
Exhibit 35: Commodity prices, exchange rates, equity indices, yields and inventories
Metals have rebounded
Base metals Cash, $/t 3-month, $/t Cash, WoW change 3-month, WoW change
Aluminium 2,535 2,556 2.5% 2.7%
Copper 9,482 9,511 1.3% 1.3%
Lead 2,289 2,287 1.7% 2.4%
Nickel 18,412 18,412 0.7% 0.6%
Tin 32,830 31,665 -0.6% 1.6%
Zinc 2,929 2,946 1.3% 1.4%
LMEX 4,195 1.5%
Cash, c/lb 3-month, c/lb
Aluminium 115 116
Copper 430 431
Lead 104 104
Nickel 835 835
Tin 1,489 1,436
Zinc 133 134

Other commodities, freight, exchange rates, equities and yields Spot WoW change
Gold, $/oz 1,792 0.7%
Silver, $/oz 26.48 1.4%
Platinum, $/oz 1,101 0.5%
Palladium, $/oz 2,818 4.8%
Iron ore, China fines cfr $/dmt 217.1 0.9%
Brent, $/bbl 77.16 4.1%
Baltic Dry Index 3,224 -3.0%
EUR/USD 1.1864 -0.5%
Dow Jones Industrial Average 34,786 1.5%
10-year US Treasury yield 1.426 -3.5%
ICE BofA Commodity index, ER 320.960 2.5%
ICE BofA Commodity index Industrial Metals, ER 197.470 1.1%
ICE BofA Commodity index Precious Metals, ER 213.100 0.2%
ICE BofA Commodity index Energy, ER 327.120 2.8%

Exchange stocks and cancelled warrants Stocks, tonnes WoW change Canc. warrants, tonnes Canc. warr., of stocks
Aluminium
LME 1,552,250 -2.1% 618,400 39.8%
Shanghai 278,383 -3.6%
Total aluminium 1,830,633 -2.4%
Copper
LME 212,475 0.7% 20,750 9.8%
Comex 44,766 -1.5%
Shanghai 142,520 -7.3%
Total copper 399,761 -2.5%
Lead
LME 75,375 -10.1% 20,700 27.5%
Shanghai 125,154 5.5%
Total lead 200,529 -0.9%
Nickel
LME 232,566 -0.7% 61,674 26.5%
Shanghai 6,263 2.6%
Total nickel 238,829 -0.6%
Tin 1,895 -10.2% 640 33.8%
Zinc
LME 252,300 -1.3% 26,875 10.7%
Shanghai 32,490 -8.0%
Total zinc 284,790 -2.1%
Source: Bloomberg, BofA Global Research
BofA GLOBAL RESEARCH

Global Metals Weekly | 07 July 2021 13

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14 Global Metals Weekly | 07 July 2021

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