Poor outlook for Copper supply, good outlook for Nickel supply – Commerzbank

The price of Nickel has seen the weakest performance among the major base metals this year and has recently even fallen behind zinc, which had previously been the worst performer. So far, it has posted a gain of just around 1% since the beginning of the year, Commerzbank's Head of FX and Commodity Research Thu Lan Nguyen notes.

Copper shows how quickly supply shocks can boost prices

"The latest projections from the International Nickel Study Group (INSG) are likely to confirm the market's view. The experts also assess the supply situation on the Nickel market as favorable, which is putting downward pressure on prices. Despite the Indonesian government's efforts to regulate domestic production more strictly, they expect production to expand further this year and next. This year, the increase is expected to be around 8%, and next year they anticipate growth of a still high 7%. Demand, on the other hand, is growing at a slightly less dynamic rate than last year, with an increase of 5% and 6% this year and next. All in all, the INSG expects the supply surplus to continue to rise."

"That said, the International Copper Study Group (ICSG) had also expected a substantial supply surplus for the Copper market. In the spring, they even raised their estimate to almost 300,000 tons. However, they have now revised this figure down to 178 thousand tons in their updated projections. For the coming year, the ICSG now even expects a supply deficit of 150 thousand tons. The reason for this is significantly weaker growth in metal production, which is expected to increase by just under 1% in the coming year, after 3.4% this year. This means that the supply situation has deteriorated significantly in a very short time, justifying a higher Copper price. However, given the still relaxed supply situation at present, the extent of the recent price increase appears exaggerated."

"At the same time, the situation on the Copper market demonstrates that the supply situation can change very quickly due to unexpected production outages. This risk is even greater for the Nickel market, as the top producer, Indonesia, can have a very strong influence on supply with a share of around 60% of global mine production. Therefore, given the Indonesian government's efforts to regulate domestic Nickel production more strictly, the risk of price fluctuations for Nickel should not be underestimated."