At the highs

The essential role of copper and nickel in decarbonisation underlines their importance in the current market environment. The price of the former, copper, reached an all-time high when futures contracts for August delivery on the London Metal Exchange (LME) traded at USD 10 849 per tonne on 20 May 2024. This represents an increase of up to 33 per cent compared to the same period last year.* Similar movements were also recorded for contracts for July delivery, which traded at USD 5.02 per tonne on the same day, and only a few per cent below their all-time high of USD 5.05 on 12 May 2024.  They even gained more than 36 percent year-on-year.*

Price development of copper futures contracts for August delivery (Source: Investing.com) *

Price development of copper futures contracts for July delivery (Source: Investing.com) *

Investors, China and sanctions

A major factor in the current rise in copper prices has been the buying of long positions on the Comex primary futures exchange, which has also affected prices outside of it. The intense buying was driven by concerns that demand would outstrip supply and expected supply constraints due to the curtailment of Chinese refinery activity. This growth was also supported by news of the Chinese government's easing measures to help the property market and the decision to issue several billion worth of bonds. Adding to the factors that supported the price was the expectation of rate cuts and the imposition of sanctions on trading of Russian copper, aluminium and nickel on the LME and Chicago Mercantile Exchange, which affected metals produced after 12 April 2024.

Sharp rise in nickel prices

Nickel also saw a sharp rise in prices, with LME futures contracts for August delivery on 20 May 2024 trading above $21,624 per tonne, up nearly 8 per cent on 16 May and up 5 per cent year-on-year. Despite this increase, prices are not moving at the levels seen in March 2022, when nickel traded at over US$42,000 per tonne during the day and closed the trading day at a 5-year high of US$32,107 per tonne.*

Nickel futures prices over the last 5 years (Source: Investing.com) *

Political unrest

The main reason for the sharp rise in the price of nickel is geopolitical tensions in New Caledonia, which is one of the major producers of this mineral. The unrest in the Pacific country has also affected miners, who have decided to close mines, disrupting production and creating supply concerns. The cause of the unrest is changes in the law that would have a significant impact on the voting rights of indigenous people and would give more space to the French, as the country is a French territory. The situation has already claimed several victims and forced Emmanuel Macron to declare a state of emergency, according to the BBC and Mining.com.

Difficult financial situation

Although the anger of the locals is not directed at the miners, current events are not reflecting well on the already precarious situation of the nickel industry in the country. Low nickel prices and high production costs have taken their toll on local companies. In February this year, Switzerland's Glencore sold some of its shares from local company Koniambo, putting it into maintenance mode. As Radio New Zealand reported Société Le Nickel, whose parent company is Eramet, nearly went bankrupt and had to be bailed out by the French government, while Prony Resources opted for a restructuring to attract new investment. According to Euroactiv.com, the poor financial situation and the price crash of last year are due to competition from Indonesia and its increased production, driven by subsidies from the Chinese government.

The king of precious metals also reached a new "high"

In addition to the aforementioned metals, gold also reached an all-time high. Spot gold stood at USD 2 439 per ounce on 20 May and briefly crossed the USD 2 440 level, while gold futures for June delivery rose to USD 2 443.30. In both cases, this is a year-on-year increase of more than 23 per cent.*

Reasons similar to copper

Factors that pushed the gold price up include a weakened dollar index and recent macroeconomic consumer price data. These showed that inflation is cooling, which has boosted investor hopes for a possible cut in interest rates, as is the case with copper. China, with the world's largest consumption of metals and efforts to stabilise the property market, is also contributing to the rise in prices. The ongoing conflicts in Ukraine and the Middle East are further support for high prices of the yellow metal as a safe haven for investors. [1]

Lacenova, principal analyst at Wonderinterest Trading Ltd.

* Past performance is no guarantee of future results.

[1] Forward-looking statements are based on assumptions and current expectations, which may be inaccurate, or on the current economic environment, which may change. Such statements are not guarantees of future performance. They involve risks and other uncertainties that are difficult to predict. Results may differ materially from those expressed or implied by any forward-looking statements.