Davis Index: Market Intelligence for the Global Metals and Recycled Materials Markets

As COVID-19 cases continue to rise, global economy suffers. International Monetary Fund has predicted a 3pc contraction of global GDP and the World Trade Organisation has estimated trade to fall between 12-32pc across the world, which is a level below the great trade crash of 2008-2009. This economic slowdown will have a ripple effect on metal downstream industries as well as production. 


Davis Index speaks to Ravindra Rao, Vice President, Head Commodity Research at Kotak Securities to gain insights about how the base metal market is likely to perform in the near terms. 


Miners in many countries have suspended or curtailed operations complying with partial or total lockdown measures issued by governments. Considering the scenario, how are base metal prices expected to move in the next few months?

The whole of metals pack hit a multi-year low in Q1 2020 as the spread of COVID-19 led to measures like social distancing and lockdown across several nations. These measures are expected to hurt global economic activity and thereby demand for base metals. 

However, in the past few sessions, we have seen prices bouncing off the lows as worries over demand destruction are being countered by growing concerns over reduction of supply as lockdown measures curb mining operations. 

Going forward, we believe this tug of war between deteriorating demand and declining supplies may keep markets choppy. Even though it is too early to say, the path of least resistance for metal prices may be downward amid expectation that the pace of demand destruction may outdo supply disruption. 


Vale has cut its 2020 forecast and immediately after, nickel prices on LME rose by 4pc. Many others are also expected to revise their outlook. How long could it take for markets to stabilise?

Base metals in general, including nickel, have turned volatile as market reacts to developments on both demand as well as supply front. The recent report of a cut in Vale’s forecast for nickel output this year along with reports of Japan’s Sumitomo Corporation shutting down output at a nickel mine in Madagascar and even expectation of reduced output from top producer Philippines have helped lift Nickel prices. 

The situation is very fluid as markets struggle to assess the total impact of virus-related lockdown on demand as well as supply. Given the uncertainty it would be prudent to say that the markets may not stabilise until there emerges a clear picture regarding the outbreak, be it regarding containment or reopening of economies as these will help in gauging the demand-supply scenario of the metal. 


With metal downstream industries in India suspending operations, how much is the consumption rate expected to decline for aluminium, copper, lead, zinc and nickel. 

Economic activity in India is expected to have been hurt considerably due to the current lockdown. With the number of cases, as well as death toll, rising it is too early to say when the lockdown will end; and even if the complete lockdown is lifted by May 3, we believe that it may take months before the economy opens completely. Given these dynamics, it is difficult to gauge the impact on consumption of metals in the nation. However, considering that IMF and World Bank have cut India’s growth rate to 2.5pc to sub 2pc for 2020-21 it is fairly safe to assume that usage of all the metals, in commercial and industrial applications like transport, construction and manufacturing, will see a considerable decline.


Profit margins of primary producers in India continue to fall as aluminium spot prices have been trading below $1,500/mt. Is this likely to distress the sector?

Aluminium is one of the worst-hit commodities in the metal sector with prices on LME hitting 2016 lows of around $1,455/mt level. The sharp slide in prices have led to many smelters globally incur cash losses. Despite this, the supply-side response has been missing globally. A major reason for this has been a decline in raw material cost like – alumina and caustic soda — along with a recent sharp drop in energy prices as power accounts for nearly 40pc of total production cost. 

If prices continue to trade at sub $1,500/mt levels then it may start putting strain on producers, however, lower production costs may lessen the burden. It may be noted that Vedanta, one of the largest Aluminium producers, reduced its production cost by 12pc to $1,769/mt during April-Dec 2019 and might be eyeing to further reduce its production cost in the near term.

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