The recent rise in aluminum, copper, and nickel price have created some short-term uncertainty as companies finalize their long-term contracts for 2023. Earlier this month, all three metals rose on the back of rumors that China might begin easing zero-COVID restrictions. In addition, the USD index has dropped from its September peak of 114. As of press time, the index sits at just 106. In this post, we’ll discuss some of the primary drivers of the recent surge. We’ll also attempt to determine whether or not the move could change the long-term price outlook for these metals.
Be sure to catch a recent interview MetalMiner CEO Lisa Reisman gave on Bloomberg BNN:
What’s Driving the Aluminum, Copper, and Nickel Price Moves?
Aluminum prices have now moved above the MetalMiner short-term resistance levels (e.g. 30-day outlook). However, they will have to jump significantly higher to confirm a longer-term change in trend. Obviously, the potential opening up of China is the primary driver behind the increases. The light metal’s price also saw support amid anticipation of the LME sanctioning Russian metal. However, based on a survey of key market participants, The LME decided to continue with the status quo. In effect, the exchange announced it would not sanction any Russian producers at all. That said, the U.S. may still consider additional sanctions on metal of Russian origin.
Meanwhile, copper has crossed its 200-day moving average into a “premium range.” Copper, more so than aluminum, seems to have increasing due to the impact of Fed interventions. The other primary factor is the USD, which has an inverse relationship with commodities in general. Moreover, mixed signals on China’s zero-COVID policy suggest that a relaxation of those policies will spur demand and, therefore, prices. However, China recently modified certain legislation to promote ideology and security over economic growth. Moreover, some pundits have since expressed concern that a relaxation of China’s COVID policies could cause inflation to skyrocket. For that reason, buying organizations can expect slow and measured moves by the Chinese government.
Finally, nickel appears well entrenched in a short-term bull market, which could spur additional run-ups of speculative demand, possibly affecting nickel price further. Thus far, that appears to be exactly what happened. Low liquidity on the London Metal Exchange due to the last nickel short squeeze continues to add volatility. A reopened China has also caused the nickel price to break out of range thus far this month. Buying organizations will want to pay careful attention to the strength of the rally, particularly if the LME signal from last week – that it would not ban Russian metal – causes the recovery to falter. In addition, Indonesia having the largest global nickel reserves (38% of global output) will add to the surplus. This could place significant downward pressure on the global nickel price, despite that country’s current nickel ore export ban.
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Watch the Macro Drivers in Case of Sourcing Strategy Change
Buying organizations will want to pay careful attention to the macro drivers at work in the markets. After all, any of these could further propel or squash the recent short-term bull run for nickel, aluminum, and copper. If prices continue to reach higher highs and higher lows, buying organizations will want to revise their purchasing strategies accordingly.
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