COMMENTARY. Performance of metals complex mixed in 2014

Now that 2014 is behind us, it would be instructive to examine the price performance of the metals complex covering precious and base metals.

Performance of the metals complex was a mixed one.

Zinc, nickel and palladium posted annual average gains of more than 10 per cent over the year. At the same time, the biggest losers were lead, tin and copper as well as silver and platinum. Does this portend the shape of things to come?

During the year, the market faced headwinds on a number of fronts including tepid global growth, geopolitical instabilities, tightening liquidity (normalisation of US monetary policy), firming US dollar and supply risks through labour action. Differentiated price behaviour was back and was largely to do with the fundamentals of each commodity.

Given the energy intensity of most metals, the recent fall in crude prices should help reduce production costs. However, demand for metals usually accelerates with a lag after energy costs have fallen. These factors may come into play this year.

On the LME, for an extended period in 2014, nickel was the best performing base metal and zinc’s movements trailed that of nickel.

However, with nickel prices falling below $15,000 a tonne by the year-end to $14,930/t, on an annual average basis the metal gained 12 per cent during the year. Nickel inventories are rising. At the same time, zinc posted it second consecutive annual average gain (13 percent) in 2014 closing the year at $2167/t.

Aluminium posted a modest annual average price gain of one percent during the year. As the year progressed, copper and lead registered price falls. Copper closed the year at $6355/t, the lowest close to the year in six years. Copper inventories have been rising.

Comparing the price at which each metal entered 2104 and ended the year further reinforces the price performance. Among precious metals, it was only palladium that ended the year higher than it entered. Shockingly, by the time the year ended, platinum fell as much as 11 per cent from January levels, ignoring supply problem. Ironically, while the supply disruption caused by the strike in South Africa did not propel platinum prices higher, demand and potential supply disruptions pushed palladium to multi-year highs.

As for gold, it was essentially flat, while silver was the worst performing precious metal for the second year in a row shedding close to a fifth of its value during the year.

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