Category base metals

Joe Biden announced a $2 trillion infrastructure package bolstering the much-needed revamp in US across ports, roads, etc. This will translate into a huge support to US and world economy

As per the observations and trends, the spent by US in last many years out of their budget in Infrastructure has been low and with the rise of china as an infrastructure and a manufacturing hub of the world, US turn was long awaited.

This was taken up by current US President, Joe Biden on 31’st Mar’21.

This is significantly positive for steel which is a ferrous metal. It is estimated that for every billion-dollar spent on infrastructure, proportionate requirement for steel is 50,000 ton.

Also looking at the current unemployment levels, infrastructure package also addresses it. Every trillion-dollar spent on infrastructure ends up creating 11 million jobs.

Going by the announcements, there will be a greater focus on energy and electrification too and it will be hugely positive for Nickel, Copper, Silver, etc.

Some of the plans are for 500 thousand new charging stations and similar number for conversion of school buses to zero emission. This will alone require close to 200 thousand tons of copper. Also, renewable sources of energy require an estimated 5 times more copper than conventional sources.

All in all, positive for base metals and steel.

Base metals are like spartans in the current environment, standing tall and resilient in front of Persians in the form of:

1. 130 basis point rise in US 10 year bond yields in last one year to 1.77%.
2. Dollar Index at 93.4
3. Higher Covid cases with third wave in Europe and second in India and Brazil. This leads to uncertainty in economic recovery and thus lower demand for infrastructure and industrial related metals.

With Dow Jones, Nasdaq, Nifty, Sensex, DAX, FTSE, Hang Seng, etc taking hit in last 3-4 weeks because of the above-mentioned reasons, base metals are standing tall. With the exception of Nickel which has seen a decline of more than 10% from higher levels, other metals like Copper, Aluminum, etc. have not taken a double digit correction.

Looking at their strength and other macros, it looks like that they are consolidating and gearing up for the next move.

Our bias will be towards Copper here

and Steel in Ferrous metals.

Current scenario for base metals is bullish and extremely positive for at-least next 3 years.

They are down from their all time highs made in 2021 and are currently taking the heat from dollar Index and risk off trade from US 10 year bond yields, having increased to 1.74%.

In our view, the rally in these metals have started from 2016 and with no significant new supplies coming in, prices and demand should remain elevated.

Its only when the commodity cycle and markets goes in frenzy that people start thinking about ramping up or setting up new facilities, which is not the case right now. This means better capacity utilization and higher realizations for investors and for companies.

We are bullish on base metals for the coming 2-3 years with specific bias on Copper and Nickel.