Metals that will shine in 2019

This year has not been kind to commodities, says Marina Gerner. 2019 could well be different.

926-digger-634

Nickel prices look "unsustainably low"

2018 has not been kind to commodities. The S&P GSCI Industrial Metals index has slipped by 15% this year. Demand from China has dwindled; the dollar has strengthened; and concern over slowing economic growth has fostered bearishness. However, there have been bright spots, while some metals look poised to shine next year as solid fundamentals overcome the lacklustre overall backdrop.

Palladium is among the best performing commodities this year, having surged by 13% to $1,257 an ounce, surpassing the price of gold for the first time since 2002. Palladium is used in catalytic converters of petrol vehicles, and in the batteries of hybrid cars. Next year, China is rolling out a tougher emissions regime and "demand is forecast to hit a record high", says Henry Sanderson in the Financial Times. It's one of the metals to keep an eye on in 2019.

Nickel is due a bounce

So is nickel, "the most baffling" metal, says Alex Newman in the Investors Chronicle. Its price has declined 30% since June, despite five years of strong demand growth outstripping supply. When nickel fell below $11,000 atonne recently, Macquarie Wealth Management described prices as "unsustainably low", and in "bargainterritory based on a misreading of the strong fundamentals likely for a number of years yet." Nickel also looks promising owing to its growing use in batteries, including those used in electric vehicles, where demand is expected to surge.

Meanwhile, a lithium boom is "attracting billions of dollars of investment in new mines," says Jamie Smyth in the Financial Times, as miners worldwide set out to dig up raw materials for batteries.

The global lithium-ion battery market is estimated to grow from $60bn in 2017 to $100bn by 2025, according to the World Economic Forum. Lithium demand is set to triple by 2025 as sales of electric vehicles increase. Sceptics warn, however, that the boom "could turn to bust if electric vehicle sales disappoint."

Then there's silver. Prices have declined by 15% this year, and are near a three-year low. "They deserve a closer look," says Myra P. Saefong on Barron's. Silver has the dual quality of being both an industrial metal and a precious metal. Over the last few years, industrial demand for silver has been boosted by investment in solar energy and rising semi-conductor manufacturing. Some 65% of demand for silver is for industrial applications, "which look very promising in the coming years," Johann Wiebe, lead metals analyst on the GFMS team at Refinitiv, told Barron's.

Silver is also "a good investment" because it is extremely cheap compared to gold. It now takes 85 ounces of silver to buy an ounce of gold a 23-year high.

India: another central bankgovernor goes

"To lose one central bank governor may be regarded as a misfortune," say Tom Miller and Udith Sikand in a Gavekal Research note. But to lose a second, as India has, "looks like carelessness bordering on recklessness." Central bank governor Urjit Patel has resigned after a dispute with Prime Minister Narendra Modi's government over the bank's independence. His predecessor also left before his term was due to end.

Modi faces elections next year and "has repeatedly pressured the central bank to spur lending", says Bloomberg. The government wanted the Reserve Bank of India (RBI) to relax curbs placed on weaker state-run banks, so they can lend more easily and "keep the economic engines firing". But the RBI wants to nurse these banks back to health instead.

The government has "trampled the central bank's independence which, although not legally enshrined, has been built up over... decades", says Una Galani on Breakingviews. The upshot is that the government "has dented international confidence in the economy," say Miller and Sikand.

But this really isn't a good time to do that. The rupee has already fallen by 15% against the dollar so far this year as money has fled emerging markets. India's long-term prospects may be excellent, but for now irritated investors may reassess their view of political risk in India and "leave Indian assets off the table."

Recommended

Don’t count resources out
Commodities

Don’t count resources out

Commodities have performed poorly over the past year, but they tend to move in long and volatile cycles.
24 May 2023
Investing in silver: the bull market has only just begun
Commodities

Investing in silver: the bull market has only just begun

Silver is benefiting from increasing industrial demand, but it is also a store of value when things go wrong, and falling supply bode well too. David …
23 May 2023
How to invest in gold
Gold

How to invest in gold

Investing in gold can help you diversify and offers protection when markets struggle. But how do you get started if you want to invest in gold?
5 May 2023
This contrarian indicator suggests we’re at the bottom of the mining cycle
Commodities

This contrarian indicator suggests we’re at the bottom of the mining cycle

Mining might be a boring industry, but investors shouldn’t ignore it, says Dominic Frisby.
29 Mar 2023

Most Popular

Best savings accounts – June 2023
Savings

Best savings accounts – June 2023

Interest rates have been creeping up - we look at the best savings accounts on the market right now.
6 Jun 2023
Nationwide to give £100 cash boost to customers
Personal finance

Nationwide to give £100 cash boost to customers

Nationwide Building Society is giving customers £100 as it reinvests profits. Dubbed the Nationwide Fairer Share scheme, we look at who is eligible.
22 May 2023
Holiday rip-off: Millions of travellers hit with hidden costs by using debit card abroad
Personal finance

Holiday rip-off: Millions of travellers hit with hidden costs by using debit card abroad

A family of four on a week-long trip to France could pay an extra £212 in fees by using their everyday bank card compared to the lowest-cost option, a…
23 May 2023