Last year, metals experienced mixed fortunes. However, they could do much better in 2024.
Industrial metals suffered from weak factory activity and manufacturer destocking, while platinoids were hit by the market’s expectation that EV adoption would structurally reduce consumption. Meanwhile, gold and silver are likely to benefit from a Fed rate-cutting cycle.
Copper
Copper prices rose strongly in 2024, following a breakout triggered by bullish fundamental factors and technical indicators. Copper is the “jack-of-all-trades” of the energy transition, essential to wind turbines (which require 950 kilos to 5 tonnes of copper per installed unit), electric mobility (4 times as much copper in an EV as in a ICE car) and solar power (for grid connections and busbars).
As the pace of energy transition accelerates, these new sources of demand are set to grow even more quickly, eclipsing the decline of traditional sectors that experienced a weak industrial year in 2023. The impact of this shift is lessening the sensitivity of metals demand to traditional economic cycles.
However, mining output remains under pressure. Rising operating costs (energy, labour and equipment) have squeezed refining margins, known as TC/RC, for copper concentrate, which is the raw material from which refined copper is made, says Money Metals. This has led to the closure of some large copper mines, most recently in Chile and Panama. In addition, environmental and social controversies have hampered production in several countries, for example in Peru where the government is trying to take control of mines owned by First Quantum Minerals1, and in Bolivia where the state has ordered mining licences cancelled.
In contrast, a growing proportion of demand is coming from emerging markets, whose economies should become more resilient as they benefit from higher global growth momentum and are less vulnerable to hawkish US monetary policy. This trend should support a recovery in metals demand in the region through 2024, offsetting lower demand from developed economies.
Platinoids suffered a tough year in 2023 as the steep rise in EV popularity reduced demand for the alloys used in batteries and electrical grids. Investors took net short positions to record high levels, reflecting the view that EV adoption would soon evict other engine types and structurally reduce platinoid consumption. This trend should reverse in 2024, as the speed of the energy transition is offset by new supply, most notably from new photovoltaic cells made of copper-indium-gallium-diselenide (CIGS). This cheaper technology has the potential to replace silicon in many applications and can be manufactured using existing manufacturing processes.
Aluminium
Aluminium is a silvery-white metal that is soft and malleable. It is one of the most common industrial metals and finds use in a huge variety of products, from foil to beer kegs, window frames, kitchen utensils, and aeroplane parts. It is nonmagnetic, nonsparking, and the second most malleable metal after gold. It also has high corrosion resistance, making it the material of choice for outdoor products and architectural structures. It is also easily recycled – it only requires 5% of the energy needed to produce new aluminium.
Although naturally-occurring compounds that contain aluminium have been known since antiquity, elemental aluminium wasn’t discovered until 1825, when German chemist Friedrich Wohler and Danish physicist Hans Christian Oersted separately managed to separate it from its salts. However, Wohler’s process couldn’t yield great quantities of the metal, and its price remained high. It wasn’t until 1856 that French chemist Henri Etienne Sainte-Claire Deville developed a way to make it on an industrial scale that the price fell, and the first aluminium alloys with good strength were produced.
There are over 100 different types of aluminium alloys, designed to have specific characteristics for the environment in which they are used. They all start life as bauxite that goes through the alumina refining process. China is the world’s biggest producer and consumer of aluminium, and accounts for 45% of all global production.
The year 2023 was a tough one for the platinoids, as weak economic activity and manufacturer destocking drove down all industrial metals. However, a more accommodative monetary policy context is now starting to take effect in Europe and the US, and should boost economic activity and make commodities more appealing again. In addition, strong energy transition demand will become a bigger driver of these metals than in the past. This trend is likely to continue, as EVs are fast becoming the dominant vehicle type, and the demand for their battery components is set to grow significantly. This could provide a welcome respite from the current bear market. This could mean that the metals sector has finally turned a corner.
Zinc
The precious metals rally that lasted through last week has continued this week, with silver outperforming gold. The white metal is up 35% this year, compared to 18% for the yellow metal. Both have broken out of their bearish channels, paving the way for new records and fresh 2024 gains.
Zinc is the third most abundant element in the Earth’s crust, occurring naturally as a metallic grey-white metal. It is the first element in group 12, and atomic number 30. It is not only used in many household products, such as door and window frames, but also in the construction of cars and railways and in the manufacture of batteries and electrical components. Zinc is essential for human health, boosting the immune system and helping to heal wounds. It also helps to regulate the body’s insulin levels and reduce cholesterol, blood pressure and blood sugar levels. In addition, zinc is a key nutrient for pregnant women and children. It is a potent antioxidant and helps to maintain healthy skin. It is a very versatile metal, with over 300 uses.
While industrial demand for silver declined slightly in 2023, it was still at an all-time high and 9 percent higher than the previous record peak in 2013. This rise is due to structural advances in green energy applications such as photovoltaics and electronics — demand that should continue to boost silver’s fundamentals.
Overall, industrial demand is expected to reach 711 million ounces in 2024, according to the Silver Institute. This would be a slight increase from 2023 but a substantial rise nonetheless, and it remains well above the long-term average of 665 million ounces.
Investors are preparing for more interest rate hikes in the US in the near future, and this will likely weigh on equities markets. However, gold and silver have the potential to outshine other monetary assets. JP Morgan has forecast that the Fed cutting cycle and falling real yields will drive the precious metals to nominal all-time highs, with gold reaching $2,175/oz and silver at $30/oz by the fourth quarter of 2024.
Platinoids
Despite a brief selloff in silver due to rising US interest rates, a slowdown in global economic growth and falling inflation expectations, the price of the monetary metals remains well supported. A continued recovery in industrial demand, central banks showing signs of leaning into Quantitative Easing and declining bond yields could further improve the scenario for 2024.
The performance of risk assets has been remarkable this year, despite synchronized monetary tightening by the world’s major central banks, regional banking crises, energy and currency wars, political uncertainty, an increasing global trade imbalance and signs of credit and consumer weakness in the US.
