Base Metals Weaken and Drag Metal Companies’ Shares Down

Ukrainian Credit Union.

Copper, nickel and zinc are Canada’s main base metals. All three metals’ prices suffered considerably during the commodity market downturn in 2011-2014. Of these three metals, zinc is the only one which now trades above the pre-downturn levels.

Metals prices are driven by movements in both demand and supply. Demand for base metals comes from various industries that serve all walks of life and, thus, these metals depend heavily on the conditions of global manufacturing. However, as the price of zinc has shown, they often critically depend on the developments in supply. After the price of zinc reached its 7-year low in January 2016, the major zinc producers agreed to limit output which has since helped to drive prices higher, in this case to practically twice their low level.

The price of copper had climbed by almost 20% this year due, in particular, to the revival of economic growth in China. However, the copper price has been increasingly dependent on supply-side factors. Currently, some market experts believe that the price of copper has peaked and will cool off going forward on the expectations of a stronger U.S. dollar due to the possibility of a US rate increase later this year.

Nickel has had the weakest performance of the three metals. It recently dropped due to factors similar to those which have affected the price of copper. Some experts expect that nickel could drop by a further 5%-10% before stabilizing.

The shares of such Canadian base metal producing companies as First Quantum Minerals (TSX: FM), Lundin Mining Corporation (TSX: LUN) and Hudbay Minerals (TSX: HBM) have recently shadowed the decline in prices of base metals. Their movement going forward will depend on the movement of the price of these particular metals, as well as company-related factors.