Since the onset of the Russia-Ukraine war, industrial metal prices have been surging to record highs. Markets are reacting to potential supply disruptions from one of the largest metal producers in Russia due to the war and sanctions. In this article, we will review recent trends in the prices of top industrial metals and how they can affect the stock market.
April palladium futures on NYMEX closed at around $3,324 on March 07 after which the prices started dropping and closed at around $2,796 levels on March 11. At the time of writing, June palladium futures were trading at $2,455. Although the metal prices have receded from their highs, there is still significant volatility in prices. Going forward, prices will react to evolving situations arising from the Russia-Ukraine war.
The progress in ceasefire talks between Russia and Ukraine has calmed the market. Some Russian exporters are using alternate routes to export metals, resulting in the recent decline in prices.
Nickel (3-month and Cash contracts) were trading for an average price of around $23,000 per tonne on LME. But the prices started to rise marginally soon after the start of the war. But, the price exploded and breached the $100,000 level, leaving traders stunned. Many trades were later canceled by the LME exchange and later trading was halted as traders with short positions were squeezed and suffered heavy losses. The price of metal has doubled since the start of the war and is currently at around $50,000 level.
Russia accounts for around 10% of the world’s nickel production. The metal is used to manufacture rechargeable batteries and produce stainless steel.
Aluminum’s three-month contracts on LME were trading at around $3,519 per tonne on 24 March and peaked at $3,984 per tonne on 09 March. At one point during the trading, the prices surpassed $4,000 per tonne. But, subsequently, the metal started plummeting and is trading at around $3,325 per tonne at the time of writing. The initial rise in the metal price is because of supply jitters from Russia and the difficulty in procuring the metal from Russia. But, like palladium, aluminum prices are now falling and are just above the pre-war levels. Investors and traders are optimistic about headways in the Russia-Ukraine ceasefire talks.
Russia accounts for around 6% of the world’s aluminum supply, so supply jitters from the country have caused a surge in metal prices.
Cobalt June Futures on Comex have been rising steadily since the start of the war on February 24, from $35.65 per pound to the current level of $38.13. Russia is the second-largest producer of Cobalt after Congo. So, the supply chain disruptions and sanctions took a toll on Cobalt Futures and physical contracts. Cobalt is used in manufacturing electric vehicles batteries. Contributing to the rising metal prices is the surge in electric vehicle demand in recent years.
Impact of Rising Metal Prices on the Stock Market
Metal prices impact the stock market in a variety of ways. Electric vehicle companies use metals in manufacturing batteries, catalytic converters, car bodies, and other essential parts. Surging metal prices increase input costs of car manufacturing companies, which could potentially lower their profit margins. Recently, Tesla hiked its car prices by thousands of dollars due to rising metal costs.
Semiconductor companies also use metals in manufacturing processors and chips. If the metal prices rise, it would become costly for semiconductor companies to manufacture chips and processors. It may also prompt companies to increase the prices of semiconductors
Metal mining companies usually benefit from rising metal prices as they could fetch better prices for the metals mined by them, resulting in higher profit margins.
Individual stocks or companies that have a higher exposure to metals react to rising metal prices. Due to high metal prices, electric vehicle manufacturing and semiconductor stocks might suffer. In contrast, mining stocks could rise with increasing metal prices.