Commodities Roundup: Trade Worries of 2018 and Looking Ahead to 2019 on Copper, Oil, Aluminum

For the buyers and category managers out there, especially those of you deep in the weeds of buying and managing commodities, here’s a quick rundown of news and thoughts from commodity markets like copper, oil and aluminum this week — as well as a look back at 2018 and forward to the year ahead.

Copper’s Highs and Lows

It was an up-and-down week for copper on the LME, hitting a three-month low before bouncing back Thursday.

The metal, dubbed Dr. Copper for its perceived usefulness as a general indicator of economic health, has had an interesting year — one of two distinct halves.

Earlier this year, the metal surged to over $7,260 per ton, reaching its highest level since January 2014. Since then, however, its price has plunged, partially on account of trade tensions — namely between the U.S. and China — rocking markets and denting demand.

The copper price plunged below the $6,000 mark by mid-August, just over a month before the U.S. imposed a new round of tariffs on Chinese imports worth about $200 billion.

Copper traded largely sideways from late September to the middle of December, before again plunging below the $6,000 mark. According to the International Copper Study Group’s most recent monthly report, the world refined copper balance for the first nine months of the year indicated a deficit of about 595,500 tons; another deficit in 2019 could support the copper price again, if demand also picks back up (likely as a result of more stable trading conditions).

What does 2019 hold? As with other metals, a resolution to the ongoing U.S.-China trade conflict will go a long way toward stabilizing markets and instilling confidence, particularly within China.

According to a Bloomberg report, a U.S. trade delegation will head to Beijing the first week of January. If the reported meeting progresses as planned, it could build on the momentum started at the Group of 20 summit (held Nov. 30-Dec. 1 in Buenos Aires, Argentina), when the presidents of the two countries met for a working dinner and agreed to a tariff truce.

As for tariffs, the two countries have traded a total of $360 billion in tariffs this year (the U.S. imposing a total of $250 billion in tariffs on imports of a wide variety of Chinese products). Apparent breakthroughs at the G20 summit led to a momentary pause on the tariff escalation; it remains to be seen what will happen if imminent trade talks fizzle, particularly as President Donald Trump has threatened to impose an additional $257 billion in tariffs on Chinese goods (essentially slapping a tariff on all products coming to the U.S. from China).

A Volatile Year for Oil

Oil also has had a volatile year with major price swings.

The Brent crude price saw a 52-week range that went from just under $50 up to nearly $89 per barrel.

In the week leading up to Christmas, the price dipped to $50.47, before bouncing back a bit the day after the holiday.

The oil price correlates with the prices of base metals, meaning falling oil prices generally lead to lower metals prices.

As MetalMiner’s Stuart Burns wrote last month, particularly in reference to aluminum: “So the oil price slide — prices have lost around a quarter of their value since early October — is one of a couple of early indicators that support for aluminum price rises is waning. Indeed, the corresponding strength in the dollar this year, coupled with recent oil price weakness, goes a long way toward explaining the aluminum price slide since the summer.”

As for 2019, OPEC members previously agreed to cut production by 1.2 million barrels per day for the first six months of the new year in an effort to control supply and boost prices, particularly in the face of rising U.S. production (the U.S. rose to the top spot in terms of crude oil production this year). It remains to be seen if the members will faithfully stick to the agreed upon production cutbacks; even if they do, rising U.S. shale production could very well offset those cuts to a certain degree.

A recent report from the U.S. Energy Information Administration highlighted the volatility of oil prices.

“The implied volatility of Brent and WTI options prices more than doubled during November, reflecting the market’s heightened uncertainty regarding future oil supply and demand, the EIA said in a release. “The realized volatility in crude oil prices last month, as measured by the monthly high-low trading range, was the largest since 2012 for Brent and since 2014 for WTI. The two crude oils traded in a $17.49/b and a $15.98/b range, respectively, during the month.”

Aluminum Reacts with a Shrug

Earlier this year, aluminum prices skyrocketed when the U.S. Treasury Department announced a list of Russian companies and individuals to be targeted with sanctions, a list that included oligarch Oleg Deripaska and aluminum heavyweight Rusal.

After pushing back its sanctions deadline multiple times (most recently to Jan. 21), the U.S. Treasury recently announced the delisting of several Russian entities, including Rusal.

However, with markets expecting the decision, the aluminum price moved very little (at least, not in the way it did in April).

In 2019, while it seems unlikely, movement related to the U.S.’s Section 232 aluminum tariff would have a significant impact on prices (but, for now, a removal of the tariff appears unlikely as long as President Trump is in office). Also worth watching, specifically, is whether the Section 232 tariffs will remain in effect for Canada, Mexico and the European Union.

Despite the recent signing of the United States-Mexico-Canada Agreement (USMCA), the tariffs remain in effect for Canada and Mexico.

The LME aluminum price dipped below the $1,900 per ton mark this week, reaching its lowest point since August 2017. Prices were also lower on the SHFE, which this past month hit their lowest level since October 2016. SHFE aluminum prices, as of early this month, had fallen 13% from the beginning of 2018.

“SHFE trading volumes fell 37% from this time last year, which means buyer sentiment — and, therefore, prices — have fallen,” MetalMiner’s Irene Martinez Canorea noted this month.

Nickel in 2019

Like copper, LME nickel also began a price slide in June, one from which it has yet to recover.

The London nickel price, since hitting a peak of $15,745 per ton in early June, has been on the decline since — this month hitting its lowest level since October 2017.

“Forecasts suggest nickel will see increased availability in 2019,” Martinez Canorea wrote this month. “Indonesia plans to increase capacity further, adding to nickel supply. Moreover, U.S.-China trade tensions over steel and stainless steel have driven LME nickel prices lower. Despite the expectation of a nickel supply increase, current stock numbers do not indicate that yet. Nickel stocks at LME warehouses sit at 215,000 tons, 40% lower than at the beginning of 2018.”