2017 was the year of base metals. Most base metals hit multi-year highs, several times in the year. While precious metals and crude oil also made positive gains, base metals stole the show among non-agri commodities.
“Base metals were the best performing asset class in 2017 as all the metals made more than 20 per cent gains in the London Metal Exchange and equally strong gains in the Multi Commodity Exchange. Rising steel prices boosted rates of the overall counter, while some metals gained more. Chinese companies went one month ahead of the expected winter cuts in order to curb environmental pollution, thus raising concerns about supply woes. While the US economy showed signs of improvement, Chinese GDP picked up in the second half of the year,” said Kaynat Chainwala, research analyst (base metals), Angel Commodities Broking.
Among the base metals, the best performers were copper and aluminum. Copper made returns of 32 per cent in LME and 25 per cent in MCX as it received support both from the macro-economic developments and its own fundamentals. The labour strikes in some of mines on Chile, Peru and Indonesia led to supply issues in copper. On the demand side, the Chinese ban on scrap copper led to higher imports of refined copper.
In case of aluminum, prices moved up 35 per cent from the start of the year in LME and 25 per cent in MCX. The winter output cuts by Chinese producers favoured aluminum the most.
Zinc did not repeat the stellar performance of 60 per cent as in 2016, but still returned 28 per cent in LME and 23 per cent in MCX. Reports about the restart of mines that were closed in 2016 kept zinc prices lower in the first half of the year. However, in the second half, steel prices and winter cuts and falling stocks in LME and Shanghai warehouses boosted the prices.
Nickel gained 23 per cent in LME and 16 per cent in MCX. Lead too made gains of 25 per cent in LME and 20 per cent in MCX. Both metals followed the broader price trends in the base metal complex.
In 2018, analysts bank upon copper prices to perform well as more than 30 mines in different copper producing countries are facing disruptions. “Not all of them are expected to be resolved next year. Hence, supply could get affected. After the winter cuts, aluminum production might return to normal and zinc prices too may get affected if mines restart in 2018. But the macro-economic factors currently look favourable for the base metals,” said Chainwala.
Though it was a lukewarm year for gold, the metal made 12 per cent gains in the international market in 2017. From $1,150 an ounce in the beginning of the year, prices ended at $1,295 an ounce in December.
“In the first quarter, gold gained more than 11 per cent amidst the political uncertainty arising out of European elections. The second quarter was relatively quiet in terms of gains with prices drifting lower from the first quarter highs. Investors had to digest two US interest rate hikes in the first half of the year,” said Himanshu Gupta, chief market strategist, Karvy Comtrade.
Global terrorist incidents, tension between the US and North Korea, and the shock sacking of FBI director James Comey were some major reasons that kept prices well supported. Strong physical demand from India ahead of implementation of the goods and services tax (GST) was also a key factor that kept prices supported above $1,200 an ounce in the international markets.
The war of words between the US and North Korea and a threat of nuclear weapon lifted the prices to fresh 13-month highs in the third quarter. However, without follow up support, market saw sell-off in the precious metal. “To summarise, the price action was relatively calmer compared to last year where a spate of events ranging from Brexit to jewellers’ strike to US presidential elections kept the markets at toes,” said Gupta.
Comparatively, it was a quieter year for silver. The first quarter was brighter with around 11 per cent gains, but the mood reversed in the second half. The metal ended up with 5.7 per cent gains in 2017. Interestingly, silver defied the expectations of investors fraternity in 2017 and chose to ignore the strong recovery in the industrial metals pack, but rather followed closely the price action of gold and marked another year of dullness. The entire year’s price range was compressed within $15.35-18.50 per ounce.
Varying levels of compliance to the production cut targets by Opec and non-Opec countries and the US shale gas production pretty much summed up the developments in the crude oil counter in 2017. Brent crude made gains of 17 per cent and WTI 12 per cent in the year that passed by.
The year started with Organization of the Petroleum Exporting Countries (Opec) complying to production cut target of 1.2 million barrels per day and 600,000 barrels in case of non-Opec suppliers as per the agreement made in November last year. The decision was made to boost prices, which were being pulled down by supply glut.
Both Brent and WTI crude moved within a tight range in the first few months till April despite the reasonably high levels of compliance to the cut targets. Increasing shale gas production by the US has been negating the effects of cut.
Post-April, prices started falling from $55 per barrel to $44 per barrel by June in case of Brent and from $53 per barrel to $42 per barrel with regard to WTI. The compliance levels have been falling, as production cuts were not bringing in desired results. In the second half of the year, the compliance of both Opec and non-Opec suppliers improved and they also decided to extend the production cut into 2018. This saw prices moving up in the second half of the year. In fact, prices gained 50 per cent in the second half.
In December, crude prices hit their highest level since mid-2015 as the US production made unexpected decline and failed to touch 10 million bpd – a level closer to that of Saudi Arabia and Russia. Increase in Chinese imports and addition of new refining capacities too boosted prices as Brent moved up over $66 per barrel and WTI above $60 per barrel.