The increase in brass prices puts tremendous pressure on the production cost of brass valves. As the cost of brass rose to more than 75% of the production cost of brass valves, the increase in brass prices directly led to a surge in the price of brass valves. In addition, the electricity curtailment caused the labor and operating costs of brass valve manufacturers to increase, and the price of brass valves increased over 15%.

On Friday, October 15th, the London Metal Exchange (LME) brass stocks hit the lowest level since 1974. The global supply tensions escalated sharply, leading to a sharp increase in the price of brass and pushing the price of brass to its biggest week since 2016. The increase (9%), and rebounded to more than 10,000 US dollars per ton, and the price of the end of the year previously predicted by Goldman Sachs is almost the same.

According to Bloomberg, after the surge in metal orders from European warehouses, the existing brass inventory tracked by the LME warehouse plummeted 89% this month. On Friday, the freely available brass in the LME warehouse was only 14,150 tons, and the industry consumes every year. About 25 million tons, the inventory of major exchanges and private warehouses is also rapidly declining, the LME period brass spread has entered a historic premium level, and recent contracts are traded at a record premium.

On Friday morning, the premium of the LME brass contract expiring tomorrow compared to the contract expiring the day after tomorrow reached a premium of $175, the largest since 1998, and then narrowed to $5, but it was only $1 at the close on Monday.

At the same time, the long-term spread between the brass spot contract and the 3-month contract soared to $350 per ton, the highest level on record.

The last time this happened was in 2006, when the buying boom brought about by China's economic boom consumed LME brass stocks to near historical lows. The current LME inventory level is even lower than the level at that time.:

The decline in global brass inventories and strong demand are in stark contrast to concerns about the macroeconomic outlook, as well as the risk of stagflation and power shortages that may disrupt the trajectory of strong global growth. At present, brass stocks in the spot market are rapidly declining, with a decrease of nearly 40% in the past 4 months. Global brass stocks may reach historical lows at the end of the year. If brass prices continue to remain low, it is expected that brass stocks will be exhausted in the second quarter of 2022. At the same time as the inventory decline, coupled with the need for futures contract delivery, the supply of brass will be further reduced, which will eventually increase the price of brass.

Goldman Sachs believes that power shortages, the supply of scrap brass in the second half of the year is decreasing, and chalcopyrite mining has entered a multi-quarter stagnation stage. These three factors will affect the brass spot supply; and it is expected that the brass market will experience a serious imbalance between supply and demand.