In contrast to the last quarter of 2019 which saw many precious metals fall in price with palladium being the main exception, the first month of the new year has proven positive for these commodities. Buoyed partially be the growing concern that the US might be entering a bearish downturn as well as central banks buying record-setting amounts of gold, precious metals traditionally seen as hedges of value have increased. However, others such as Nickel, Zinc, Tin, lead, and Copper all saw significant gains over the course of January, alongside Palladium, Silver and Gold.
According to Mining.com, the largest winners of the month was Nickel, which surged 17 percent and currently sits at $12,325 per tonne. Palladium and Zinc followed, increasing 9 and 8 percent respectively. One of the poorest performing metals of the group, Aluminum, increased a measly 2 percent.
Nickel, in particular, is at a three-month high, with investors worrying that amidst a tight supply, Brazilian miner Vale could further restrain output. This has largely been in response to news that the mining giant would be cutting production to focus on safety issues after a dam burst in Brazil last week, killing 85 people and displacing hundreds.
However, other analysts suspect that the current rise in price is short lived. BMO Capital Markets analyst Kash Kamal went on to say that “Current price moves are a knee jerk reaction to the Vale news,” according to Reuters. Instead, a forecasted increase in output from China and Indonesia are supposed to reach record levels of production this year and weigh down nickel prices.
BMO Capital Markets expects Indonesia, the world’s largest nickel producer, to increase 34 percent this year to around 777,000 tonnes. By 2020, that figure is forecasted to increase to 850,000. In comparison, global nickel demand is at just over 2.4 million tonnes. The bank went on to state that they see a potential deficit of 129,000 tonnes, but other analysts disagree. “Nickel is still very stainless led and it’s a macro story,” said Citigroup analyst Oliver Nugent. “Nickel will have its heyday but maybe this isn’t the year.”
Palladium prices have been increasing partially due to strong demand from catalytic converters for car production, a trend that has continued since 2018. Zinc has also surged as supply issues saw the precious metal surge in price.
“For some, zinc is not very exciting but we think it has plenty of potential for investors,” said Jeff Hussey, CEO of Osisko Metals. “The world needs more zinc mines but we don’t have them because there has been no exploration. If you had all the expected development projects come online at full capacity, analysts expect that demand will still outstrip supply by mid-2020. This means there is a limited risks of further downside in the price long term.”
Zinc has traditionally been seen in a similar vein as copper, with low prices of the past few years putting off investments and limiting future growth. This has led to a big supply gap in the market, with companies in both sectors getting used to cyclical supply and demand trends. Regardless, precious metals are expected to increase in value going forward into 2019 as a whole.