Base Metals 2018 Round-Up: Ravaged by the Trade War

The world of base metals hasn’t been looking so pretty since US President Donald Trump got his wish for a trade war with China, as investor sentiment cratered and commodities in the sector took a drive around mid June.

While prices didn’t get too much worse than they did in the September quarter — they didn’t get too much better either, with base metals across the board posting ghastly losses both year-to-date and compared to highs achieved during the year.

All five of the base metals covered by the Investing News Network posted losses over the year, and to varying degrees analysts pointed the finger at the trade war for tanking what was looking to be an otherwise rosy year.

Price Rundown: Year-to-date

Doctor copper — the metal that diagnoses the health of the world economy — didn’t have much good to say about the trade war.

The red metal crashed through June and July, falling as low as US$5,822 a tonne in early September after having begun the year at US$7,180.5.

While copper slightly recovered from those lows — spending most (keyword) of the fourth quarter above US$6,000 a tonne — as of time of writing in late December it’s on its way back down, clocking in at US$5,985 on December 27 on the LME.

Zinc isn’t doing too well either — the second base metal crashed harder than other base metals — with analysts saying that its value may have been ahead of supply and demand fundamentals before the trade war.

Its numbers were the ugliest of the bunch, losing 24 percent of its value year-to date. As of writing, it’s trading at US$2,535 on the LME.

Base metal number three; nickel (which is moonlighting as a battery metal these days) enjoyed an ascendant first half of the year, with its value increasing 24 percent from US$12,680 to a yearly high US$15,745 a tonne in early June.

That high didn’t last in the face of an onslaught of negative investor sentiment; year-to-date, nickel ended up down with all the other base metals, losing 15 percent of its value as of late December.

Lead had the same ugly old story — losing 22.3 percent of its value through 2018. While it had been on its way down since an early high in early February (where it reached US$2,682.5 a tonne), the effect of the trade war is still very clearly visible when looking at the numbers, wiping out May and June gains — and then some, for lead to finish below US$2,000 a tonne on the LME.

While not as badly affected by the trade war, the story for iron was one of softness through the year as investor sentiment wasn’t proving too buoyant even as tighter regulations in China came down on the steel-making industry. The result of changes environmental laws in the world’s largest iron consumer and steel producer meant that miners began to prioritize high-grade iron content ore in their marketing, leading to what one analyst called a wider price spread as premium grades attracted premium prices.

Top Stories of 2018

Looking at our three top stories across the three top base metals (sorry lead and iron), it’s a slew of stories of EVs and the trade war galore.

Copper: BHP Picks Copper Over Other Metals to Benefit from EV Boom

Heading our list of top five copper stories for 2018, when early in the year, BHP (ASX:BHP,NYSE:BHP,LSE:BLT) CEO Andrew MacKenzie endorsed copper as his pick to benefit from the coming electric vehicle (EV) boom, and discussed BHP’s plan to ride the wave.

“We have a strong growth plan for copper,” he said. “The copper market is an order of magnitude greater even when you allow for [EVs] than we would expect the cobalt market or lithium market to be.”

Zinc: Zinc Supply Crunch Hides in Shadow of Trade War

Heading the top five zinc stories, our most popular zinc news story of the year is a September article focused on how the trade war between the US and China was affecting prices. At the time, the base metal was down over 30 percent year-to-date, hammered by concerns about demand.

“A lot of [the price drop] stems back to … the trade war narrative we’re hearing about between the US and China, and the US and other groups, [and the] concern that has created with regards with near- to medium-term demand,” said Stefan Ioannou of Cormark Securities.

“The writing’s on the wall here: we’re losing supply and there’s no new supply coming in to replace it. That’s really setting up for a supply crunch,” he said.

Nickel: Super Batteries: Which Metal Will Fuel the Future?

And finally, leading our top nickel stories for 2018 is a June interview with Jon Hykawy, president of Stormcrow Capital. Speaking at the 6th International Nickel Conference, Hykawy shared his thoughts on the future of the battery metals sector, including the role nickel will play in lithium-ion batteries moving forward.

“It looks like [battery companies] going to be able to push higher and higher nickel levels moving into the future,” he said. “Maybe it’s a slightly higher processing cost, but we’ll see how it plays through. Nickel is going to be a part of these batteries for a very long time to come.”

Base metals outlooks for 2019

Looking to the year ahead, INN published outlooks for each of the five base metals covered.

Copper experts blamed the trade war fair and square in our copper outlook for 2019, saying that unless the US-China spat simmered down, the copper price would stay low — though a supply deficit could push prices much higher in the medium-term.

Zinc suffered the most of all the base metals in 2018 — and with supplies now well down as of the end of the year, could be in for a volatile ride heading into the next.

With battery metal hype sucking up oxygen in the nickel narrative, the story for the base metal in 2018 was that markets had gotten ahead of themselves and prices corrected. Headed into 2019, economists predicted a higher nickel price with the proviso that the trade war was resolved, and if not: more of the same.

Iron was relatively untouched compared to other base metals — though prices were lower, Chinese regulations meant premium grades went for decent prices — an impact economists see continuing to make a splash into 2019. The primary driver as always will be Chinese demand however.

Finally, the lead story was more like the first three base metals, posting losses through the year alongside falling stockpiles and relatively stable demand — leading to a mix of bearish and muted predictions for the metal in the year to come given current world politics.

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Securities Disclosure: I, Scott Tibballs, hold no direct investment interest in any company mentioned in this article.

Editorial Disclosure: The Investing News Network does not guarantee the accuracy or thoroughness of the information reported in the interviews it conducts. The opinions expressed in these interviews do not reflect the opinions of the Investing News Network and do not constitute investment advice. All readers are encouraged to perform their own due diligence.