Year-End Update on Copper and Nickel

Submitted by J. Frank Sigerson as part of our contributors program.

Year-End Update on Copper and Nickel

It’s not looking good for copper as the year draws to a close. The Organization of the Petroleum Exporting Countries (OPEC) has decided not to intervene in the surplus of crude oil, thus affecting the prices of base metals in the market. As long as energy supplies are in excess, other commodities are predicted to fall, too, according to experts.

Per a Bloomberg report, the price of copper futures dropped to $2.8435 last week, the lowest it has been since 2010. Aside from OPEC’s announcement, other events like the strike at Antamina in Peru also played a role in the price changes. BHP Billiton Limited (NYSE:BHP), who owns the mine, says that normal operations would return soon after three weeks of stalled work. At the London Metal Exchange (LME), copper for a contract of three months slipped by 3.1% to $6,351 per tonne, for a total of a 14% drop this year alone.

Copper is usually found in a lot of home appliances and electronics, so when the base metal doesn’t do well, it means consumers are not purchasing as much. Financial analysts say that more often than not, it means the global economy is headed for a rough patch. This was evidenced by the influence of China’s production and how its slowing down means demand for products is decreasing.

Should we be worried? Michael Block of Rhino Trading Partners says otherwise. Via CNBC: “The world has changed. The next leg of Chinese growth won’t come from the investment side of the GDP equation, but from the consumer side. That means using copper as a one-factor model may not work.”

Nickel, on the other hand, also declined at the LME last week. The Citi Group puts the deficit of nickel at 62,400 tonnes this year, while next year would see it rise to 103,000 tonnes, per the Shanghai Metals Market bulletin. China’s nickel inventories are all but gone, and while the Philippines has taken the place of Indonesia as a supplier of iron ore (after the latter’s export ban policy), production is slow going due to several monsoons passing through the country. China also has had to adjust because iron ore from the Philippines is significantly of lower-grade.

Still there are others looking to enter the demand-supply relationship. Amur Minerals Corporation (AIM: AMC) from Amur Oblast, Russia, has recently announced that it is in the last stages of its application license to explore and produce its flagship nickel sulphide project, Kun-Manie. Investors are looking at it as a valuable resource, one that might be useful to the world in the future, considering it has a reserve of more than 120 million tonnes of mineralization.

Vale (NYSE: VALE), another mining company in Brazil, lists iron ore as its major product. The Ausralian mining sector also wants to weigh in, crediting the decline of the Australian dollar for the stability of nickel. According to IBIS World: “[The] trends in US dollar nickel prices, the value of the Australian dollar and in the volume of nickel production will continue to drive industry performance during the five years through 2018/19.”

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Sources:

http://www.bloomberg.com/news/2014-11-28/copper-falls-to-eight-month-low-as-oil-slump-seen-hurting-prices.html
http://www.cnbc.com/id/102228235#.
http://www.metal.com/newscontent/67038_citi-group-sees-nickel-deficit-at-deficit-62400-mt-in-2014
http://www.miningaustralia.com.au/features/the-2015-metals-outlook-series-nickel