Base metals have been one of the major casualties of US President Donald Trump’s trade war, with fears over the future of trade relations and economic growth hitting both demand and market expectations for prices. China remains the key driver for demand, and markets remain hugely reliant upon economic indicators from the world’s second biggest nation as a driver of sentiment in the commodity sphere. The so-called ‘Dr Copper’ remains the bellwether for global economic health and expansion, yet, when considering that China consumer over half of the world’s copper, it is clear that the Chinese economy is essentially the bellwether for global growth. With the breakdown in trade knocking Chinese growth prospects, it comes as no surprise that we have seen the price of base metals suffer throughout 2018.
The phrase base metals typically refers to the metals that are not perceived as ‘precious’, thus ruling out the likes of silver and gold. They typically have a range of commercial and industrial uses, so the demand for them will tell you a lot about the degree at which economic growth is occurring. Some of the most commonly traded base metals include iron, copper, nickel, aluminium, zinc and lead.
Copper and iron ore are probably the two most dominant base metals, given their widespread use. Copper is used heavily within electronics, while iron ore is used to create steel, which is used heavily in construction.
The deterioration in copper, iron ore, nickel and aluminium prices throughout 2018 are highlighted in the chart below. One thing that is stark is the fact that iron ore was the first to suffer heavily, losing 20% over the first three to four months of the year. This was not the case for the others, with nickel actually gaining 20% in the four months to April. However, we are now seeing that trend reverse, with a convergence that has seen a steep decline in copper, nickel and aluminium, while iron ore regain lost ground.