Metals prices are going mental. Battery metals are flying, and the same can be said for the base metals’ suite; copper, in particular, is in terrifying territory.

Zinc is touching a near 14-year high. And the list goes on.

S&P Global/Platts senior managing editor (markets) Yuen Cheng Mok said there’s a direct correlation between rising energy prices and the spike in metals prices.

“Metals need power to produce, so less power will likely mean less output and supply, even forced shutdowns for some factories, and that will certainly support prices,” she said.

“This is especially the case for high power consuming base metals like aluminium for example.

“Most recently we are seeing the energy crisis in Europe drive up global base metal prices to new multi-year highs, such as copper breaking above $11,000/mt, and aluminium surging above $3,000/mt.”

China’s power cuts started the ball rolling

But Yuen Cheng Mok said this support for metals started much earlier this year with China’s power restrictions, which pushed domestic aluminium to a 13-year high.

“And it’s still ongoing, China is announcing new power limitations and changes in power prices and policies almost every other day in varying regions of the country,” she said.

“Besides base metals, we’ve also seen record high prices this year for other metals such as silicon, magnesium, manganese, and ferroalloys, mostly pushed up by China’s power cuts which heavily impacted production of these metals.”

Copper production not impacted

Wood Mackenzie research director (copper) Eleni Joannides said refined copper production is far less energy-intensive than many other major base metals and especially when compared with aluminium and steel.

“Near term we have seen very little impact in terms of impact to copper smelting capacity in China or elsewhere,” she said.

However, Woodmac is tracking the issue, because if power issues continue in China there is a risk that China may extend this as a blanket ban across many heavy industries.

“Elsewhere we have not heard of any impact on supply,” Joannides said.

“The increase in price for copper appears to be driven more by the decline in visible inventory (i.e., at the exchanges) rather than as a direct link to higher energy prices.”

So is it good or bad for base metal producers?

“Some might say it’s great for producers because prices are high, but then if they have no power to produce and must cut output, they’ll have less to sell,” Yuen Cheng Mok said.

“Costs are also higher, so you need to do the math and balance everything.

“In general, most producers and consumers prefer stability to volatility.”

Joannides also said that higher copper prices are a good thing for producers, if they can produce enough copper to take advantage of these higher prices.

“However, on the flipside high prices could dent demand from the consumers as they may defer any purchases of metal to see if this latest rally in prices is sustained or not,” she said.

“The higher prices could also see consumers who are able to do so dip into the scrap market rather than purchase higher priced cathode.”

When does the party stop?

But in the near-term, the market mostly expects the power crunch to continue as winter is coming in the Northern hemisphere – and that means more power consumption.

“In the longer run, the move to go green and decarbonise could also mean less energy output, as people cut investments in some of these areas such as oil and gas,” Yuen Cheng Mok said.

Joannides also says that if production cuts are not forthcoming in China or elsewhere, then “that would support our view of a global surplus which from a fundamental perspective should weigh on prices.”