Demand for mined commodities exceeded pre-pandemic levels in 2021. Despite macro-economic headwinds over the next few years, growth seems assured and could be supercharged by a faster decarbonisation pathway. Supply constraints and disruptions continue and are likely to be exacerbated by economic sanctions in the wake of Russia’s invasion of Ukraine. High energy prices and an increasing drive to reduce emissions, combined with pandemic-related labour shortages will also weigh heavily. Prices are at record levels, albeit only in current dollar terms. Analysts are lining up to advise that markets for mined commodities are in uncharted waters.
But history has a knack of repeating itself. Whenever market fundamentals are strong, the focus on metal exchange stock levels rises exponentially. A narrative that industry stocks will ‘run out’ was gaining traction before the invasion and will be an increasing concern.
The conflict in Ukraine and Russia’s role in the metals and mining supply chain only serves to illustrate the importance of understanding stocks. So, where do industry stock levels stand now and how low will they go?
Wood-Mackenzie says all the major metals under review in the chart above are running with stock levels in days of consumption close to their long-run 25-year trends. This raises questions as to how fundamentally tight these markets are. Importantly, reported stocks represent a very small proportion of total stocks; focusing too much on these can be misleading.
Over the next five years, the trends in total stocks indicate that it’s very much a mixed bag. This has obvious implications for prices. Nickel and zinc will experience significant stock drawdowns, with stocks falling to well below historical averages. This points to a significant price run-up if that has not already been factored into analyst expectations.
Aluminium will see stocks falling, although Wood-Mackenzie does not anticipate previous lows of 55 days will be reached. For the remaining commodities, stocks are on a rising trend in absolute and relative terms, which suggests that prices will come under downward pressure.