Metals: Trendish in 2014

Metals are one of the major commodities that are traded in the exchanges all around the globe. In the commodity markets, metals are very luring for the investors. The reasons for the higher demand of the metal commodities are the higher values of the commodities and comparatively easier analytical forecast. Usually, metals can be divided into: Precious Metals and Base Metals (Industrial Metals). The examples of Precious Metals are Gold, Silver, Platinum, Palladium, etc. whereas the examples of base metals are copper, zinc, nickel, aluminum, etc.

When the world came across the global financial crisis during 2008/09, the prices of not only metals, but many others collapsed. By now, most of the prices have revived already and few are very close to doing the same. It was already in February of 2011 when the World Bank metals price index increased by 164 percent to reach the value of 126 in comparison to the low of December 2008. There were several increases as such with major commodities before the complete revival from the financial crisis. Investments already increased and there was strong supply response of the commodities which justified that the increment observed was sustainable. The decline was very worrisome upto the start of 2011 but the institutions and the countries had already started the counter measures by then which demystified the effects of financial crisis. The major portion of the increased supply of the metal was for the massively growing China whose consumption share reached to 45 percent. Upto last year, the share was only around 42 percent whereas upto two decades back, the consumption share was only 5 percent.

From the above discussion, we can see that the decline in the price level halted after a certain time but it was very unfortunate that the halt did not last long and then coming to 2014, the decline in the World Bank metals price index came down by 3 percent. During the first quarter of 2014, when the price declined, it was obvious that Chinese imports slowed down significantly. Besides that, the lowering of investment activity trying to cash-in the booming property market also posed a serious threat to the price level. For example, development of Chinese imports of aluminum, zinc, copper and iron ore has braked to zero or turned destructive in three months to February after facing growth rates in excess of 50 percent in three months to November. The Commodity Outlook Report shows that prices for lead, tin, copper, aluminum and iron ore declined 0.6, 1, 2, 3 and 11 percent respectively. Exceptions to this trend were nickel and zinc whose prices increased (up 6 percent each).

It would be interesting to know that the recent data show Nickel as the most traded metal commodity in the world. How did it happen that Nickel emerged being so special for the commodity market overtaking Gold or Platinum? The major reason why Nickel emerged up in the market was the Indonesia’s imposition of an export ban on unprocessed ore which was adopted in January 2014 also being escalated by the concerns over Russian supply activities. These two countries hold around 40 percent of the mined nickel in the world which is the most important ingredient for the steel-making. Commodity Market Outlook in April states “China relies heavily on Indonesian nickel ore to produce nickel pig iron, a less expensive alternative to refined nickel. If the Indonesian ore supply is permanently removed from the market, China will be forced to substitute with higher-grade metal, which could dramatically change the market which has been plagued with chronic stocks and over-sup­ply since the financial crisis in 2008.”

Presently, the stockpiles of the metals have gone down in major exchanges, only by 0.5 percent though, but if the historical standards are seen, the levels can be interpreted as going up. For exam­ple, nickel stocks are up 72 percent at end-2014Q1 (y/y). Aluminum stocks, which have been rising since end-2008, increased just 0.2 percent during the same period, but they remain near their 10-year peaks. Stocks of copper, lead, tin and zinc are all down (approximately 30 percent each) over a year ago, but nonetheless remain well above their 10-year averages.

Though metal prices went down by almost 5 percent in 2013, which was the result of supply concerns and weaker demand; the results might show difference in 2014. Though silver prices showed a decline of 1.5 percent, the increment in gold and platinum prices have covered it up. Gold prices, though being volatile look to show some bullish signals according to the report. Similarly, never ending labor strikes in South Africa look to escalate the Platinum prices in the market.

Besides that, resolution of India’s limits on gold imports to check its current account shortage and China’s efforts to adjust its “shadow banking” system might put extra sliding pressure on prices, given that gold has been used as a security in financing deals.

Note: This article was published in MEX Express in July, 2014.