Base Metals Weekly Round-Up: Nickel Squanders Recovery

As last week wore on, gains made by nickel since its six-month lows hit in late January fell away on the London Metal Exchange (LME) thanks to global market uncertainty.

The vital base metal was down at US$12,695 per metric ton by Wednesday (February 19), hitting that value following two straight days of losses after starting the week on Monday (February 17) at US$13,056.

Meanwhile copper was bumbling along at US$5,745 per metric ton — well up off lows it hit at the same time as nickel, but not by much.

On the LME this week the other base metals zinc and lead were also a mixed bag, with zinc at lows not seen since mid-2016 at US$2,126 per metric ton — where it has been wallowing around since February 10.

Lead on the other hand was seeing some (relatively) dramatic increases, reaching US$1,918 per metric ton on the LME — well above its six month low of US$1,809.50, which it was sitting at as recently as February 10.

In a note, analysts at Wood Mackenzie said that due to the COVID-19 coronavirus, “it seems increasingly likely that February will be an economic write-off for China” in regards to local supply, refining and demand for base metals.

They estimated that as many as 50 percent of Chinese zinc and lead mines had taken an extended shutdown due to containment efforts by authorities, with some considering waiting to restart until March.

In news in the sector, it’s been a month of quarterly, half-yearly and full-yearly reports, with mining giant BHP (ASX:BHP,NYSE:BHP,LSE:BLT) releasing its half-year 2019-2020 results, in which it took special care to highlight the disruption, uncertainty and unpredictability that COVID-19 was baking into commodities markets around the world.

The company still took an optimistic stance.

“Despite near term uncertainty — due to the coronavirus outbreak, trade policy and geopolitics — we remain convinced about the positive underlying fundamentals of our commodities,” said CEO Mike Henry in the release.

“We see enormous potential to reliably deliver exceptional financial and operational performance, and to grow value and returns.”

Speaking to reporters following the release of the results, Henry stressed the importance of leaning into “future facing” metals like copper and nickel.

Meanwhile, the world’s second-largest copper mine, the Grasberg mine in Indonesia, is having its medium-term future set in stone as its operator, PT Freeport Indonesia, complies with arrangements made with the government of Indonesia by building billions of dollars of new resources infrastructure in the country — including a new copper smelter on Java.

As quoted by Reuters, PT Freeport Indonesia’s Tony Wenas said the company expects to start construction of the smelter in August, with site preparations in East Java almost complete.

“Ground preparation will be finished soon, maybe in two to three months, and it will be followed immediately by physical construction,” he said.

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