Metal Prices Plunge Due to Strict Lockdown in China

The metals markets have been in a celebratory mood for some time now—whether we’re talking about aluminum, zinc, copper, iron, or nickel. Each and every one of them has risen to all-time highs in recent months. In 2021, prices were further driven up by the global economy, which was back in full swing. For many, COVID-19 turned out to be nothing more than a bad memory, and the recovery went exceptionally well.

On February 24 of this year, Russia’s invasion of Ukraine began. It’s ironic, but that event served as a catalyst for even more dramatic price increases across all metals. The expectation was that massive shortages would arise due to trade embargoes and the potential destruction of steel mills. This led to the spike we see in this chart from Argus Media Group:

However, those expectations did not fully materialize. Russia and Ukraine together account for the production of approximately 2 million metric tons of new iron and 1.5 million metric tons of pig iron, which find their way to the EU each year. These may seem like enormous quantities, but the EU has been able to absorb them well in hindsight. This is partly because Russian metals are not actually subject to trade embargoes. In addition, more new steel has been imported from Turkey, and European steel mills have ramped up their own production.

Nevertheless, it has once again become clear that China, as an economic giant, is the key factor driving price fluctuations. On March 28, Shanghai went into a strict lockdown due to a new COVID-19 outbreak. As a result, countless ships are waiting off the coast of the port to be loaded and/or unloaded. This, of course, is causing massive delays, which are significantly exacerbating the already existing supply chain disruptions.

This development will cause global economic growth to level off somewhat. As a result, fewer raw materials may be needed for the production of goods. That is why we see a sort of free fall in the graph above. Furthermore, there seems to be little reason to hope for a recovery in the short term. Rumors are growing stronger that more major Chinese cities will follow suit with lockdowns, in the hope of completely eradicating COVID-19 infections.