When 2014 started, the outlook for industrial metals couldn’t be have been more bleak. Almost every single base metal was hitting new lows and so were commodities indexes. The US Dollar seemed to be gaining ground and Chinese economic data wasn’t very positive. In short, there was no need to take long-term positions in any of the base metals.
Six months into the year, we can see that the picture is changing. During the first half of 2014, some base metals such as nickel and zinc have already achieved buy signals, commodities indexes have experienced significant gains, the dollar has lost some ground and Chinese economic data has improved thanks to support from stimulus measures taken by Beijing.
History shows that industrial metals move in tandem. The reason is that macroeconomic factors drive all of them in similar fashion. In the commodities boom of the 2000s, nickel was the first base metal to turn up, then a few months later aluminum and copper followed pushing the rest of base metals into a bull market that ran into 2008.
If we were entering a new bull market, Nickel and Zinc seem to be the leaders this time. Indonesia’s export ban and the closure of major zinc mines pushed these two metals higher so far this year. Meanwhile, Aluminum and Copper, the laggards, are showing some life but still need to prove themselves more before making us turn bullish. In the same manner, lead and tin remain trending sideways, waiting for a call to turn upward.
In conclusion, we already saw the horns of nickel and zinc in this first half. These two metals will likely continue their way up as soon as the rest of base metals follow. A decline in the US Dollar and further improvements in the Chinese economy would make this possible as commodities become more expensive due to a weaker dollar causing investors to pour money into commodities due to higher expectations from Chinese demand.
by Raul de Frutos