Which Metals Will Survive Through 2015?
What makes a metal tick? It's a question that plagues economics and casual investors alike, who fret over the smallest ticks of gold on the commodities market while possibly ignoring massive swings of volatility in other, less popular, metals. During most of 2014, the answer to the aforementioned question seemed simple -- absolutely nothing. That's because metal had a downright horrid 2014 overall, as mining companies faced serious cutbacks or went out of business altogether thanks to a precious and base metal downturn. Only three metals came out of 2014 with positive results: nickel, zinc, and palladium. Some of these metals have had a downright dominant fortune continuing into 2015, especially zinc, making it important to ask whether the good times are set to continue or whether we've already reached the high point.
The Big Losers
For all the focus on gold's rise and fall during 2014 (resulting in almost no net gain), smaller metals took it on the chin in a particularly rough fashion during the past year. Silver took an outright beating from January to December, losing no less than eighteen percent of net value from day 1 to day 365. Part of the demise and fall of the silver empire lies in the cost threshold of pulling it out of the ground: falling demand in a sluggish global economy made silver-producing nations like Canada mine 25% less silver in 2014, a supply dearth that still hasn't closed the price gap. Following in close footsteps were copper and lead, both of whom suffered immensely from China's economic slowdown as the nation's construction projects -- including the famous empty cities -- ground to a slowdown. Copper has rebounded a bit in 2015 but had a positively terrible month of May, dropping nearly ten percent in value. Lead also has far less demand at present than during the metal's peak of 2011; while lead has far less volatility than many other base metals, it has still trended downward in the past 48 months without much relief. The IMF cut its projections for the use of industrial metals during 2015, making it important to ask why these base metals performed poorer than their cousins in nickel, palladium, and zinc. The answer lies not in construction but in manufacturing and politics.
A Car In Every Garage
The expansion of the automotive industry may not have made headlines in the US, where total production of cars hasn't risen more than single-digits per year since the 2008 recession. Look overseas, on the other hand, and you'll see a bevy of new automobiles clogging up the road. China's car production has doubled since 2009; Ford plants in India have doubled output in just the past year. Zinc represents the sine qua non of the world's auto resurgence, as engine batteries need both metals for their electrical conductivity and resistance to corrosion. India's car manufacturing now accounts for ten percent of the nation's total GDP, three times that of the United States and comparable to Japan's auto industry relative to GDP; they're also the seventh-largest consumers of cars in the global market. The growth of the Indian economy has meant the growth of the auto industry in tow, meaning good things for zinc. Where nickel is concerned, however, there's one factor above all else that has made them a metal survivor of 2014.
When you control most of the world's supply of any one commodity, your decisions on its export will shake the market itself. Indonesia learned that lesson after an eight-month export ban of nickel in 2014, declaring that the island chain nation would limit the sale of unprocessed nickel to other nations due to the domestic needs. Fifteen percent of all nickel consumed on the global market comes from Indonesia due to the fact that the volcanic islands upthrust the nickel-rich mantle of our planet to the crust and makes mines particularly productive. The Indonesian nickel ban made the commodity spike to six-year highs; Citigroup subsequently released a report that nickel deficits would rise to 60,000 tons in 2015 and over 100,000 tons in 2016. Today, the nation seems far from contrition about the ban: they've attracted a billion and a half dollars from foreign investors in a dozen separate nickel smelting plants over the country in order to keep the industry humming.
Precious metals cannot forget 2014 fast enough but for one particular exception, palladium. Similar to nickel, the finger of blame may be pointed firmly at one nation: South Africa. The world's second-largest producer of palladium after Russia saw their output flat line thanks to a labor strike that eliminated half the working year. Palladium rose to three-year highs on the dearth of supply and questions about the future of the precarious mining nation, whose 26% unemployment threatens the political and economic stability of a world leader in gold, diamonds, platinum, iron, coal, manganese, and chromium. The scarcity of palladium relative to its sister metal platinum made the 2014 year good for the former and bad for the latter. The South African strike barely caused platinum to flinch upwards, ending 2014 at $1210 an ounce after beginning the year at $1358 per ounce. While South Africa faces considerable problems getting their products onto market, it's unlikely that palladium has much more room to grow after such a major rise. Palladium has lost ten percent of its value in the past three months alone, indicating further loss ahead.
Surviving Into 2015
The base metals zinc and nickel will likely never be worth as much per ounce as palladium, but they represent a better future for the remainder of 2015 than the beautiful silver-white metal. More importantly, they appear set to provide consistent value at a time when other base metals and precious metals are struggling just to break even. Investing in the base metal survivors of 2014 provides your portfolio with strong growers throughout the near future, but palladium appears to have peaked and investors should sell high if they retain any palladium in their holdings.