Copper and steel prices have joined other commodities in reaching record highs in 2021. Fueled by a variety of factors, industry specialists and economists say there are no signs that these climbing prices will slow down anytime soon.
The prices for our consumer staples—everything from lumber and metals to corn and coffee—have risen dramatically over the past year.
Copper, steel and other metals are no exception. In most markets, the rise in prices has to do with traditional economic fundamentals. Supply is tight due to production shutdowns during last year’s pandemic. For this reason, inventories have been drawn down. Now, demand is going up due to the economy reopening, fueled on by government stimulus. According to a May 21 report in the Wall Street Journal, copper prices are up 86 percent from a year ago, while lumber is up 278 percent and crude oil is up 85 percent.
According to a recent World Bank report, copper prices, along with iron and tin, reached a ten-year high in March. Increases in copper prices are due to a few different factors. The rising prices reflect strong global demand that started in China and continue now in the U.S. Copper’s use in housing and electronics makes it a strong indicator of global economic activity. It is an especially important material in the manufacture of electric cars and other consumer electronics. Now that the economy has opened up, here in the U.S. consumers are spending their savings and stimulus checks on houses, home renovations and consumer goods that use copper. Additionally, as various countries have pledged to transition to more electric vehicles and utilize more renewable energy, the demand for copper will continue to increase. According to the research service BloombergNEF, about 1.9 million tons of copper was used in 2020 to build electricity networks.
For metals, producers of both ferrous and nonferrous material have struggled to catch up with the demand increase since they slowed down capacity during last year’s pandemic.
Subsequently, steel, like copper, is experiencing a run up in prices. When the economy shut down last year, steel demand plummeted and mills slowed down capacity. The economy and steel demand have come roaring back, but steel production has not kept pace. According to the steel industry publication The Fabricator, steel service centers are operating with record-low inventory, an average of just 1.8 month’s supply at the end of March. Most service centers would buy more steel if it were available, but because they cannot get more tonnage, some are turning customers away.
Bottlenecks in the shipping industry are also contributing to commodity price increases.
The surge in demand for some goods during the pandemic greatly disrupted usual supply chains. This disruption is still acute in the container shipping business. There are subsequent long delays to deliver goods, leading to localized shortages in some areas, as demand continues to increase. Traders are having to pay significantly more to move goods via container ships, and this cost is being passed on in the form of higher prices for the commodities being transported.
The question on everyone’s mind is how long is this going to last?
According to economists, looking at the market dynamics, it is not likely to change anything soon. A recent poll of steel buyers, conducted by Steel Market Update (SMU) to gauge market conditions, shows that confidence is strong for continued price increases with no signs of slowing down this year. According to SMU’s mid-April report, few steel buyers reported signs of high steel prices slowing down demand and more than 40 percent said demand for their products and services was growing. Some 80 percent reported they saw no signs of change in the market’s direction. According to the independent price reporting agency S&P Global Platts, steel consumers are still facing long delivery times for domestic or imported steel since supply is tight in numerous places around the world. In the steel scrap market, industry experts say supply is constrained because of supply chain disruptions. Severe weather this winter reduced collection rates and the auto industry’s semiconductor shortage means less scrap is being generated from used vehicles.
Will these price increases eventually dampen demand?
Rising commodity prices do not cause overnight increases in the ultimate amount consumers pay for goods. Eventually, however, retailers will not be able to absorb these increasing costs and higher prices will drift down to consumers. This will inevitably start to dampen demand. Given the unique current economic landscape, however, no one can pinpoint when this might happen.
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