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Commodities Trading: Fundamental Factors That Affects the Base Metals Prices

Published : October 24, 2020

Factors affecting base metal prices

Introduction: There are a lot of factors that affect the prices of commodities. The main reason for the changes in the prices of commodities is the gap between demand and supply. We are going to discuss some of the tools and data which affect the demand and supply of base metals.  A group of several commodities such as Copper, Zinc, Lead, Aluminium, and Nickel is known as base metals which are also known as non-ferrous metals. Inventory or storage is one of the factors which affect base metals prices and the data of inventory of all the base metals is released on the daily basis by London Metal Exchange (LME). The production and consumption data is also critical while analyzing the base metal prices. The world economic growth is also a major factor in doing analysis of the base metals. We also have to keep in mind the world smelter data which can be useful if the number of smelters increases or decreases then it could impact the price of base metals.

Inventory: The data of inventory is released every day by the London Metal Exchange (LME) around 2:30 PM IST. The inventory data explains stocks of the metal at a particular point in time. If the inventory is increasing at the warehouse on a daily basis then it’s a negative sign for the prices of that particular commodity. On the contrary, if the inventory data is decreasing then it has a positive impact on the price of the commodity.  Many traders also look for the data of cancel and warrants data whether it is associated with the base metals prices. It shows the actual inventory which is marked for delivery. If the canceled warrant ratio is increasing then it is supportive of the base metals prices and vice versa.

Production and Consumption: The data of production and consumption is the most important data to determine base metals prices. This data can be found on the international study group of each commodity such as copper has its international copper study group website which releases the data every month however the data is delayed by two months but still effective to see the trend of production and usage of the particular commodity.

World Economic Growth: Worldwide economic health is also a major factor in determining the base metals prices. One has to keep in mind the overall economic growth of the world and the emergence of new developing countries which can consume metals in developing the country in huge quantity. The geopolitical tensions are also kept in mind while analyzing the commodities as consumption of the metals could decrease if such tensions arise for the countries. If the economy is on boom then there would be more demand for automobiles too which is a positive sign for the rise in the base metals prices. There is also another sector that impacts base metals prices more such as infrastructure and real estate.

Primary Producers (Smelters): Primary producers are those who make ingots from the ores which they purchase from miners. The increase or decrease in the numbers of smelters can affect the base metals prices as they can drive the supply by producing more ingots or vice versa.

Conclusion: As we can see there are several factors on the influence of base metals prices which we have discussed above in the article. These fundaments factors are used by most of the traders while taking the investment decision during their trading.

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