A thawing in the US-China trade war could fuel a rally in base metals in 2020 after the prolonged conflict largely kept a lid on prices in 2019. Global growth was hobbled by the two-year dispute, including in China, which accounts for about half of metals consumption and is the world's second-largest economy.
The conflict showed signs of easing after a Phase 1 deal was agreed this month between the United States and China. That sent copper, often seen as a gauge of economic health, to its biggest monthly gain in two years. A string of upbeat data from China has also inspired confidence in base metals demand, including Tuesday's numbers showing manufacturing activity in China expanded for a second month running in December.
However, risks remain, said Saxo Bank commodities strategist Ole Hansen, adding that the trade deal has yet to be signed and both sides must live up to the conditions of the agreement. Benchmark copper on the London Metal Exchange (LME) finished the year with a 3.4% gain, recovering from a decline of nearly 18% in 2018. It closed about 16% lower than at the end of the previous decade.
The metal used in power and construction ended 0.7% down at $6,175 a tonne on New Year's Eve as investors booked profits from a rally sparked by the easing trade tensions. The index of the six main industrial metals on the LME rose 2.4% this year, led by nickel and copper.
By far the best performer among LME metals over the past 12 months has been nickel. The metal is on track for its strongest year in a decade, lifted by an expedited ban on nickel ore exports from Indonesia from Jan. 1, 2020.
The stainless steel ingredient's strength on the back of a supply deficit has been undermined by weakness in the stainless steel market and a surge in inventories from hidden stocks.
In LME-approved warehouses this year, nickel inventories are down 27%, lead stocks gained 40% and zinc stocks have dropped by 60%. Nickel jumped 31% in 2019 and touched a five-year high in September. The metal ended Tuesday's session down 2% at $14,025 a tonne.
A transition to cleaner energy will take centre stage in metals over the coming years, requiring significantly larger amounts of copper, nickel and other metals. In other metals, aluminium capped off the year with a 0.9% decline to $1,810, clocking an annual loss of about 2%. Zinc was down 7.8% on the year after ceding 1.5% to $2,272 on Tuesday.
Lead eased by 4.9% in 2019 despite supply disruptions at major smelters, ending the session 0.8% down at $1,927. Tin was the worst performer this year, shedding 12% as stocks climbed and demand waned. It closed the session 1% lower at $17,175.
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