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The new year could see two base metals experience contrasting fortunes as it plays out according to industry experts. With increasing demand for tin and the weaponization of copper by China, the markets could move dramatically in one direction or the other as 2019 gets into its stride. The latest experts to shine a spotlight on the value of tin and copper are Daniel Lacalle and mining analyst John Meyer. In discussing the outlook for base metal markets in the coming months, the experts agreed that certain forces are working to make the aforementioned commodities ones to watch.
Factors Beyond the Dollar Are Moving Base Metal Price
During the pair’s December 6 live Q&A “#IGCommodityChat: exploring base metal markets”, organised by the multi-platform trading company IG, talk of a strengthening US dollar and a global slowdown was brief. Despite some analysts pointing to the value of the dollar as a market move in the base metals industry, Lacalle suggested that the dollar is actually with the same range it's been for the last five years. What’s more, with other global economies devaluing, things have actually started to even themselves out, meaning the metal trading prices won’t be too severely impacted by US currency fluctuations.
For the experts, the real focus for 2019 is what happens with tin and copper. Addressing the former, Meyer believes that batteries and solar cells make it a strong short-term investment. With tin needed for solder and other facets of the solar and wind farm industry, it’s a base metal that’s integral to the sustainable energy market. However, despite its necessity, Meyer points out that new tin supplies are becoming increasingly difficult to find. In February 2018, the International Tin Association (ITA) reported a drop in tin grades produced in Minsur’s mine in Peru. With production down by 8% compared to 2017, demand is likely to outstrip supply in 2019.
Short vs Long Forecasts for Tin and Copper
With that being the case, those trading base metal commodities online could see a price surge in the early part of the new year. With quick-trade options and continuous charting, the online trading arena makes it easy to take short positions on tin and benefit from the current supply vs demand deficit. When tin production increases and new sources are found, this balance will be redressed and prices will start to fall. Based on that, copper could become the base metal of choice for those with longer term visions. With China continuing to apply political and economic pressure on the US, copper prices fell early this year following a massive sell-off by a Chinese investor. As the US/China trade war essentially made copper a weapon with which the latter was able to use against the former, its value took a hit.
However, for Lacalle, the trade war could be a misnomer. In his opinion, overcapacity is driving the current dip in copper prices. With China upping its up production, it’s now looking to sell to the US, while the US is looking to maintain its position as the country that sells to China. This shifting dynamic has caused the marginal demand to soften. Despite overall demand increasing, so too has the supply market. Therefore, in real terms, copper isn’t as valuable as it once was. The one saving grace for copper could be the lack of new mines. In the short term, production was strong in 2018. Moving forward, this could change. Even with marginal demand softening, a shortage of supplies will always drive up prices. Based on this, those with long positions on copper will be looking to hold throughout 2019 and into 2020.
Whichever way the markets move, base metals have shown once again that they’re not only in tune with global events but also forces affecting them. For traders, this means more short and long-term movements in the coming months, not least for tin and copper prices.