Weekly recap on Copper and Nickel vis-à-vis Australian Market

2020 started with the shockwaves coming from the global uncertainty, latest due to the drone attack on Iran by the US leading to the industrial metals prices and stock market to fall pushing oil price steeply high, post the strike. The conflict between the US and Iran were intensifying leading to a surge in oil price during the mid-week. However, luckily for the crude bears, the oil prices started to correct during the end of the week.

It is to be noted that, high oil prices plunge the economic growth reducing the industrial activity and thus weakening the demand for the metal. In the milieu of which it is pertinent to note that the metals used in power and construction sector, say copper had fallen ~1.5% on 3rd January 2020 to USD 6075 per tonne from the previous day, moving investors toward more safe-haven investment like gold, indicated by immediate surge in gold prices post the attack.

Copper Price in USD per tonne

Source: London Metal Exchange

However, the prices started to recover after falling more than 1% on the day of the strike to USD 6,097 per tonne due to the positive anticipation of upcoming phase one trade deal negotiation between US and China. The cloud of US trade disputes has been anticipated to be cleared in coming days but then the thunder of trans-Atlantic trade dispute is closely watched in 2020.

Trans-Atlantic trade dispute

The confrontation started with France imposing a digital tax on Facebook and Google and if in retaliation the US imposes a tax, say on the automobile since it is exported less than its being imported from EU, may initiate the spiral and may adversely impact the trade deal between the two countries. Also, to mention Brexit may reduce the demand for copper in the short term due to the curtailment of investment or capital spending.

Do Indirect commodities in Power and Construction Sector get impacted?

Yes, Nickel being one of the major industrial metals of which around 66.67% is used in the stainless steel, too showed the similar trends as copper. With the prices tumbling by around 2.4% more than ~100 bps as compared to copper as shown below.

Nickel Price in USD per tonne

Source: London Metal Exchange

The price of nickel fell from USD 14,070 per metric tonne on 2nd January 2020 to USD 13,735 per metric tonne on 3rd January 2020. The market then started to recover and reached USD 13,855 before collapsing again to USD 13,805 per metric tonne on 8th January 2020 which may be attributed to the Iran attack on US Iraq base. As is the case with commodities, the prices reversed the trend and shot back to USD 14,120 per tonne by the end of the week.

Is Australian Equity market following the same trend as commodity price?

The Australian mining sector has not witnessed the same impact as S&P/ASX 300 Metals and Mining index has steadily increased from AUD 4503.735 on 2nd January 2020 to AUD 4624.766 on 10th January 2020 (AEDT 1:32 PM) and major copper producing company in Australia i.e. BHP Billiton (ASX: BHP) too showed similar trends as shown below.

Source: ASX

Is Non-Correlation in price trends between S&P/ASX 300 vis-à-vis Copper due to soaring prices of other commodities?

A question may arise that the unparallel trends may be due to the other commodities such as Gold and Oil whose prices have increased amid the tension. BHP has both the Gold and Oil commodity in the portfolio but what if the company has a major commodity as Copper or Nickel?

Nickel Mines Limited (ASX: NIC) too has shown quite contrary trends showing a spike of 0.8% and 2.4% on 3rd and 8th January respectively concerning previous day price. Both the day the share traded at AUD 0.65. This contrasting relation to the global uncertainty is because the Australian equity market is dependent on many other factors such as the market of concentrates or ore, export country and portfolio dynamics to mention few.

In the case of Australian nickel market, the majority of the products is been exported to China thanks to huge stainless-steel demand. However, Chinese port has a surplus of ore at the seaport and expected to keep prices for nickel ore or nickel pig iron low for short term.

Also, interestingly US and Iran tension is also helping the export due to the weakening of dollars as well as GBP due to the Brexit. With this AUD may be winning over GBP and expecting to gain on bounce-back of the commodity price in the near term. The rise in prices of the gold commodity has shown causal relation to the pound sagging and including all above factor may tip the GBP/AUD exchange rate in favor of Australia.

The sentiments show quite intriguing trends and seem that the investors have quite a positive outlook in the short-term anticipating price of the commodity to rebound with US and Iran tension ceasing.

The same is easily visible on the copper prices gaining momentum and reached USD 6153.5 USD per tonne on 8th January 2020, 1.3% increment from the drop. And it worth mentioning that this positive sentiment would continue depending on the steps taken by the US toward Iran in the coming week.

Good Read: Australian Economy 2020 Predictions

London Metal Exchange:

Copper trading detail (9th January 2020):

Nickel trading detail (9th January 2020):


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