In the realm of global decision-making, 2024 unfolds as a canvas painted with 40 national elections, shaping the destiny of over 40% of the world's population and influencing a substantial 40% of its GDP (gross domestic product).*

On November 5, 2024, the culmination of the election cycle in the United States will see voters casting their ballots to determine the country's 47th president. As the nation approaches this pivotal moment, a compelling narrative emerges, prompting the exploration of the intriguing question: What impact do election years have on metal prices?

* Courtesy of JP Morgan.

It Starts with GDP

Before delving into the impact on metal prices during election years, a crucial starting point is examining historical economic performance within these electoral cycles. Economist Alan Beaulieu, Ph.D., with ITR Economics, offered insights during Ryerson's ENGAUGE virtual conference.

Contrary to the common belief that the economy flourishes during presidential election years, Beaulieu's analysis reveals a nuanced reality. "People tend to be optimistic and believe that the economy does well during presidential election years," he says. "However, data show that the parts of the economy that matter most to manufacturers tend to slow down their growth rate during a presidential election year."

Regardless of the political party in power, Beaulieu points out that GDP tends to experience a deceleration during election years. This challenging observation sets the stage for a deeper exploration into the intricate dynamics connecting political cycles and economic trends, with a particular focus on the implications for metal prices.

Do Elections Drive Metal Prices?

Regarding the impact of election years on metal prices, analysis shows that there doesn't seem to be a statistically significant difference in metal prices between Republican and Democrat presidencies.

Ryerson's risk management team conducted an assessment of the yearly averages for industrial metals in both election and non-election years (see chart on the next page). What the team found could be a bit surprising to some. 

“In the last year of a presidential term, we found that, if anything, there tends to be a slight bias to the upside in terms of metal prices,” says Nick Webb, Ryerson’s director of risk management, commodities hedging. “The bias likely isn’t meaningful or consistent enough to alter purchasing decisions though, which is surprising given the divergence in approaches to trade policy from president to president.”



The Inauguration Bump?

Analysis from Macquarie Bank Ltd. suggests that a bigger impact on metal prices could come in the window between the election and inauguration. The financial services company recently conducted an analysis of global commodity prices around presidential elections since 1976.
The data took into consideration performance between the start of election years and the election itself, between the election and the inauguration, and from the inauguration to the subsequent election year.

The data took into consideration performance between the start of election years and the election itself, between the election and the inauguration, and from the inauguration to the subsequent election year
 
The data revealed that commodities' strongest annualized performance has tended to fall between the presidential election and inauguration, with the Bloomberg Commodity spot index showing average annualized gains of 3.9%.

Furthermore, the data shows that the run-up to elections (+2.9% annualized) has also outperformed non-election years (+1.6% annualized).

The cumulative data underscores the notion that although presidential elections can influence metal prices, they do not steer them heavily in one specific direction or another.

Sheet, Plate, Tube: Will Prices Converge?

Carbon steel, sheets, plates, and tubes have historically correlated with shared raw materials and production processes. Traditionally, pricing trends for these three products moved in parallel. However, recent shifts have disrupted this historical alignment.

The divergence in pricing among sheet, plate, and tubes raises the question: Could 2024 usher in a realignment, marking a return to convergence for these interconnected carbon steel products?

The chart below shows that between 2010 and 2012, there was a notable correlation between sheet, tube, and plate prices. While not perfectly synchronized, these products generally moved in tandem, reflecting a historical alignment in their pricing trends.



Despite the historical alignment, a substantial divergence emerged in the pricing trajectories of sheet, tube, and plate carbon steel products over the last few years. Specifically, sheet prices have deviated greatly from the historical norms. Tube prices have been a bit more correlated to sheet prices because hot-rolled substrate is used for making these products.

“In my opinion, 2024 is a year in which we may see these large gaps in pricing begin to disappear and much of that could be due to the descent of plate prices towards sheet prices and a closer alignment of tubular prices with carbon sheet prices,” says Nick Webb, Ryerson’s director of risk management, commodities hedging.

Excess Inventories, New Premiums Impact on Aluminum

Aluminum inventories on the London Metal Exchange (LME) have surged recently, which is a shift from the scarcity of this commodity in prior months.

However, much of this increased aluminum supply originates from Russia. This poses a significant challenge for buyers, particularly those affected by sanctions and trade restrictions preventing them from procuring materials from this region. The geopolitical complexities and restrictions associated with Russian aluminum sources can deter buyers seeking a stable and reliable supply chain in the aluminum market.

On another front, news from Platt’s Aluminum Symposium states that it has introduced a daily Low-Carbon Aluminum Premium (LCAP) price assessment for the U.S. market, based on a maximum CO2 emissions limit of 4 mt and requiring certification from an internationally accepted, independent organization.

Aluminum producers emphasize the importance of adopting a U.S. premium for low-carbon material as a key incentive for the industry's full decarbonization.

The industry faces challenges in expanding the low-carbon premium, as some customers may already receive low-carbon material without paying a premium, highlighting the need for a clear global standard on what qualifies as low-carbon.

Jeff Nodes, Ryerson's director of supply chain, believes there will be no immediate impact in the U.S., as how the decarbonization process/structure will work still needs to be determined.

"Longer-term though, when you see the capital investment noted to implement decarbonizing aluminum production, the general assumption would be a potential increase in the cost of material," he adds.  "But I would caution that there still is a lot of information that needs to be unpacked before we have a full understanding of the impact this could have."

The Next Chapter in Nickel Prices

By now, most stainless buyers are aware of the historic short squeeze on the price of nickel on the LME (London Metal Exchange) in 2022.

As a refresher, the scenario unfolded when a substantial Chinese seller of nickel futures, perhaps looking to hedge against anticipated nickel price decreases, shorted the price. Instead of dropping prices, they surged significantly, causing financial distress for those short on nickel futures.

Since that time, the LME has taken many steps to address market concerns, including implementing trading bands and fast-tracking new brands of nickel onto the exchange. The latter move aimed to counter the perception of a tight market caused by limited LME inventories, particularly of class one nickel. Despite nickel's overall abundance, the concentration of class two nickel, mainly from Indonesia, created a skewed perception of scarcity.

Recent efforts by the LME to approve more companies for class-one nickel inclusion helped ease the perceived tightness in the nickel market.

So, what is the next chapter in the story? Some believe nickel prices could be bottoming out. According to Nick Webb, Ryerson’s director of risk management commodities hedging, even low-cost providers might curtail production to restore a balanced supply-demand condition if nickel prices reach a certain low point.

Webb also notes that it could cause Australian miners to also curtail production due to the challenges posed by extremely low nickel prices.

It is certainly a scenario to watch closely if you are a stainless steel buyer, as nickel prices heavily influence the price of stainless steel surcharges, among other factors.

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