Base Metal Producers to Remain Focused on Cost Savings and Capital Disciplines

Submitted by Arturo Garcia as part of our contributors program.

Base Metal Producers to Remain Focused on Cost Savings and Capital Disciplines

In 2015, base metal producers will focus more on cost savings and capital discipline, according to Moody’s Investor Service. The forthcoming deficit and the ongoing supply-demand predicament would force producers to cut down operational costs and put more efforts in strategic projects to mitigate the possible losses that could be obtained from decreasing market prices.

Moody’s also stated that it would be highly impossible for base metals to recover and soar in prices anew within 12-18 months. However, copper, zinc, and nickel will remain stable and manage to trade within the price ranges recorded in 2014. Aluminum, however, could possibly surpass 2014 trading records.

Unequal and irregular global economic expansions and China’s sluggish growth will hinder recovery next year. These could influence price movements despite US economy’s stability.

Moody’s also stated that prolonged drop in oil prices and local currency weakness against US dollar are beneficial to commodity suppliers and producers, especially to those with operations in the nickel and zinc segment.

Prices should remain unpredictable as long as global growth factors are tipping risk to the downside. Stability would only happen if the current global predicaments such as ore importation prohibition in Indonesia and Japan’s ongoing recession continue in 2015. Chinese export/import levels, production disruptions brought by depleting mining firms and operations-related reasons like strikes, and foreign currency movements will continue to dictate prices.

Political concerns also affect essential growth factors such as market perception and investments. The current political upheaval in Russia and some of its large mining companies’ involvement in the Crimean scandal are swaying market players into different directions. Some investors see these occurrences as factors that may harm their future investments, whilst some see this as odds that would benefit them in the future.

However, junior explorer Amur Minerals (AIM: AMC) is seen as a worthy alternative to penalized Russian firms, especially if the sanctions are not be lifted in 2015. Amur has gained immense investor attention and industry reputation on news announcing its exploration license’s conversion into pre-production one. The promising nickel deposit on the Kun-Manie project could be a substantial factor in alleviating the forthcoming scarcity of global nickel supply and in improving base metal segments’ standing amongst traders and market players.

The continuous weakening of the US housing sector, Commtrendz Research director Gnanasekar Thiagarajan said, would also harm the base metal segment. The 2.8 percent decline in the new housing segment, along with the large pullout from the entire US housing sector pulled base metal prices down to lowest since 2009. The world’s largest economy’s housing segment and demand for base metal products are closely interconnected, added Thiagarajan.

Copper led the decline of base metals on the London Metal Exchange (LME) on Wednesday at a settling price of $6,649 a tonne. Nickel and zinc recorded partial declines of 1.37 percent at $16,230 a tonne and 0.53 percent 2,272.5 a tonne.

Nickel remains the best performing base metal in 2014.