Base Metals

Base Metals Investing

Fears about demand have been draining on prices in the base metals sector, as China slows to a crawl thanks to quarantines and disruptions.

Base metals have been suffering under coronavirus uncertainty, as the outbreak in China brings parts of the world’s largest industrial economy to a halt, curtailing demand — for now.

For copper — often referred to as a measure of all things economic — the story began turning around this week after a month of drastic declines in value. The red metal managed to claw back ground each day over the period, starting at US$5,593 a metric ton and reaching US$5,725 by Thursday (February 7), seemingly posting one week highs each day.

The turnaround has been credited to reports that China will be seeking to inject more stimulus into the economy after the disruption of the virus and the government’s containment efforts.

“We expect some short-term headwinds to copper demand from China as a result of the novel coronavirus epidemic,” Fitch Solutions analyst Sabrin Chowdhury said to the Financial Post.

“Demand should pick up by the second quarter of 2020, especially as the Chinese government will boost stimulus measures to cushion the domestic economy … and hit economic targets set out earlier.”

Speaking with the Investing News Network, Wood Mackenzie’s Nick Pickens said that, while copper is “well behind” expectations for 2020 so far, Beijing will have no option but to stimulate the economy.

“This will be either through infrastructure spending, interest rate cuts and/or tax reductions. This could be positive for prices,” he said.

Copper has been credited as the likely star of recovery efforts going forward as the economic bellwether commodity, making its future potentially much brighter as 2020 drags on, and the coronavirus (hopefully) becomes a thing of the past.

While the copper price had a rebound this week off the back of the expectation of stimulus efforts — which are yet to come, as Beijing is focused on containing the virus for now — it is still well below its starting point for 2020, which was US$6,165. From there, it fell to a yearly low of US$5,569 on January 31 — almost a 10 percent decline.

While copper isn’t the only base metal, there seemed to be only one story happening for the sector this week, with a few small variations.

Zinc spiked higher above its 2020 starting point, and fell just as hard as the coronavirus hit. Early this week, it enjoyed a bump in value seemingly as healthy as copper’s, from US$2,198 per metric ton to US$2,222. However, that fell away on Thursday, with the metal trading at US$2,204.

Nickel’s story is slightly more rosy: it’s also fallen through 2020, but its rebound has been longer than just this week. Nickel was trading at US$13,005 per metric ton by Thursday, up from a low of US$12,530 on January 30.

Meanwhile, lead had a rebound, but during the week it shed most of its gains, and as of Thursday was at US$1,843 per metric ton — just a shade above its 2020 low of US$1,835, which it hit on January 30. Lead started the year at US$1,903, and spiked to US$2,026 over two days in mid-January. Since then, it’s been (mostly) downhill.

Don’t forget to follow us @INN_Resource for real-time updates!

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



S&P 5004349.93-6.52


Heating Oil2.68-0.01
Natural Gas4.24-0.04