Another refrain that is often heard and rarely substantiated by facts is that commodities are very risky and probably not suitable for the private investor. Well, commodities come in all shapes and sizes, just as company shares do, from antimony to zinc. What we will all agree on is that raw materials really matter.
Three-month forward prices on the London Metal Exchange - which now has an outpost in Qianhai (a new free trade zone near Hong Kong) to try to recapture business lost to the Dalian, Shanghai and Zhengzhou commodity exchanges - saw sustained rallies in 2016.
First up aluminium which, since forming a rounded bottom in Q4 2015 and Q1 2016, rallied in a series of neat steps and is back at May 2015 levels, up 31 per cent from its interim base. What is perhaps more interesting is that the $1,500 per metric tonne was the long-term mean from 1990 until the speculative commodity boom started around 2006 - and peaked in 2008 as banks scrambled for money. It hints that producers should see $1,500 as a long-term base and that further rallies are likely this year, $2,250 being do-able but above $2,500 hard to sustain; over $2,750 unlikely other than on serious US dollar weakness.
Copper's chart is similar if less elegant, basing in Q1 and Q2 2016 with a symmetrical triangle. Onwards and upwards in tandem with ally, as the laws of technical analysis say ought to happen, prices are up 35 per cent and close to May 2015's high. Again $4,000 per metric tonne looks like a long-term base, but one significantly higher than the $2,000 that prevailed from 1985 to 2005. Here too further gains are expected this year, with a lunge at $8,000 a distinct possibility.
The chart for nickel may look dreary - but it's not. Like the others, the band between $8,000 and $10,000 per metric tonne looks like a secular low, a level that had capped from 1985 to 2003. But it's inherently more volatile than the other two, posting a shocking record high just over $50,000 in 2007. The drop from $12,000 at the end of last year is seen as a healthy correction, which should set up for a rally through here to $15,000, maybe $20,000, later on.
Finally zinc, which really got its skates on, doubling in value to $3,000 per tonne. Capped in the two decades to 2005 at the $1,500 level, it's provided the springboard for the latest rally. Stalling again at $3,000 this month, interim low points in 2006 and 2007, it should not prove too big a barrier for the gains to $4,000 we.ve pencilled in for later in 2017.
Worth noting that the charts of these metals on Shanghai's Futures Exchange look very similar and, because the yuan's depreciated from 6.20 per US dollar to 6.96 since 2015 - 12 per cent - rallies are even steeper to take this into account.
