Markets started the year on a sombre note owing to weak demand growth in top consumer China and massive supply overhangs. The mood brightened over the year as Chinese authorities pumped money into the economy, much of it into infrastructure. That was reinforced by optimism about growth after Donald Trump won the US Presidential election in November, providing another reason for funds to jump on the bandwagon.
"There was a sea-change in sentiment after the US election," said Newgate Asset Management Chief Executive Mike Frawley. "Expect to see weakness over coming months; seasonal factors and the stronger dollar." The Chinese New Year holiday in the first quarter of next year will mean slowing manufacturing activity, while the US currency is near 14-year highs, making metals priced in dollars more expensive for non-US firms.
The focus next year will remain on China, which accounts for about half of global demand for base metals. "There are still some quite big risks to demand for copper," said Matthew Tillett, UK equities portfolio manager at Allianz Global Investors. "China hasn't really rebalanced its economy ... and we all know that's not sustainable long term." Copper ended at $5,535 and zinc at $2,576.
Mine closures, tight supplies and expectations of deficits have supported zinc this year. However, stocks in exchange warehouses and elsewhere - totalling nearly 2 million tonnes or about seven weeks of usage - are potentially negative for zinc, as is the rebalancing of commodity indices in January. "For zinc, the selling of 12.2 percent of the daily volume over each of the five days represents a decline of 10.9 percent in total open interest," Societe Generale said in a note. "In total, 8,423 lots of zinc will need to be sold on the close."
Tin closed at $21,125. A tight LME market, where inventories are hovering near eight-year lows of 3,660 tonnes, or less than a week's consumption, are one reason for its gains this year. Nickel ended at $10,020, up 32 percent since hitting a 12-year low of $7,550 in February, helped by robust demand from Chinese stainless steel mills. Aluminium climbed 12 percent this year to end at $1,693 and lead was also up 12 percent at $2,016.