Nickel, Copper Crude Prices Could Likely Bottom Out in May 2017

May Likely to be Month of Bearish Bias – June Could See Buying Activity Resume, and Prices Recover Across Commodities

Following overall weakness in all major commodities including Copper and Crude Oil, Nickel Prices also staged a retreat in the last two months. After reaching a high of $12132/MT on the London Metal Exchange, prices recently marked a low of $8900/MT on 5th May 2017. The recent decline in nickel prices has been attributed to the news regarding the mining closures in Philippines, following the rejection of the controversial Philippine environmental secretary Regina Duterte. In her 10-months as acting environment minister, Ms. Duterte suspended the licenses of many miners after inspections found that they were violating environmental regulations. In February, 23 mines were ordered closed, mainly nickel producers. The suspensions were estimated to remove about 50% of the country’s nickel output, which amounted to 10% of global supply. This had led to an overall optimistic climate for nickel prices. But now it seems that cancellations would be removed, also many mines despite closure order, are already operating.

One cannot say how much these news actually impact the nickel prices or commodity prices in general, but as from my personal experience commodities generally tend to be weak in the month of April and May. By the end of May or 2nd week of June, prices bottom out, and commodity prices then look for economic triggers to gain positive momentum. This situation is valid, when the general global economic health is good. And for now, and for the rest of 2017, I believe the economic conditions are going to improve. Europe and US both are doing pretty well, while China has its own policies to maintain growth at a acceptable rate.

For now it seems to me, that nickel is moving in unison with other commodity complex such as crude oil and copper, which are both the leading indicators of global economic activity.

Copper prices could find support in the region of 5400-5450, as it is a major support. Buyers of industrial base metals can make purchase decisions if we see positive momentum in scrap markets and global economic activity. The first trigger needs to be crude oil prices, iron ore and then scrap prices. If we are regularly in touch with the price trends of crude oil, iron ore and scrap prices, it would become much easier to make informed purchase decisions. Otherwise, it is very difficult to survive in this world ruled with speculative activities.

Co-Relation Between Oil and Copper

Copper has long been considered a leading indicator of global economic health. More than any other base metal, copper is tied closely to manufacturing, electrical engineering, industrial production, information technology, construction, and the medical sector. In general, rising copper prices have indicated strong demand and global economic strength; lower prices, a weaker economy.

Historically, the price of copper has been strongly correlated with the price of gold, the Chinese economy, world trade, and most consistently, with the price of oil. Oil and copper tend to be affected by the same economic factors. In addition, energy costs comprise about 30% of the cost of copper extraction and up to 50% of the smelting and refining process. Long-term, as the price of oil fluctuates, so has the price of copper.

In conclusion, the link between oil and metals, steel or copper has been unbreakable. Although we may not be able to visualize that in the short terms, but for a period of 6-12 months, they co relation has to come in line.

Crude Oil Prices

Crude Oil Prices Find Support at $43.90

Iron Ore Prices

Iron Ore Prices at $61.37 (US/t) At the Close: 9 May 2017

Copper Prices

Copper Prices Trading at around US$5500/MT as on 10th May 2017

Nickel Prices

Nickel Prices trading at $9170/MT as on 10th May 2017

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