The downward trend on the copper market observed in recent years stopped in 2016. The price of copper in USD at the end of 2016 was 22 percent higher than at the beginning of the year. However, average annual prices on the London Metal Exchange (LME) in 2016 were at a level of 4,863 USD/t, i.e. 12 percent below the average price in 2015 (5,495 USD/t).

Copper prices at the LME and key events affecting prices against the background of BBG Commodity

Source: Bloomberg, KGH

Increases in copper prices were accompanied by growing levels of exchange inventories of copper which amounted to 549 kt at the end of 2016 (compared with 482 kt at the beginning of the year). The quantity of materials in Chinese duty free warehouses increased from 460 kt to 520 kt. The consensus of estimates of key market analysts assumes a surplus of copper at a level of approximately 160 kt in 2016. However, the situation of the physical copper market did not affect investors’ decisions strongly enough to counterbalance their enthusiasm resulting from a positive change in perceiving the outlook of the copper market in future years.

Precious metals recorded very strong growth rates in the first half of 2016. The gold/silver ratio showing the relation of gold prices to silver prices remained at a relatively high level of 73 on average.

The average price of silver according to the London Bullion Market Association (LBMA) increased in 2016 by 9 percent and averaged on 17.14 USD/oz as compared to 15.68 USD/oz. in2015. The average price of gold increased by 8 percent year over year and reached the average level of 1,250.32 USD/oz.

Prices of silver and gold in 2016 according to LBMA

Source: Bloomberg, KGHM

The annual average price of nickel on the LME amounted to 9,609 USD/t in 2016 and was almost 19% lower than the average price recorded in 2015 (11,807 USD/t). The market consensus among analysts is that a nickel deficit will persist in the following years, but the expected increase in price may be dampened by the historically high level of nickel inventories. Moreover, there is significant uncertainty regarding the supply side with regards to the quantities of nickel to be mined in Indonesia and the Philippines, which depend largely on political decisions and the requirements imposed by the market regulators in these countries.

Nickel prices and inventories in 2011–2016

Source: Bloomberg, KGHM

In the first half of 2016, molybdenum prices showed a consistently upward trend. was due As a result of the changes in the demand and supply balance, the market recorded a deficit of 12.2 kt in 2016 (according to CRU). However, the increase in prices was dampened by the high level of global inventories. As a result, the average price of molybdenum in 2016 was 14,453 USD/ton and was approx. 3 percent lower than the average in 2015 (14,837 USD/t).

Molybdenum prices at LME and the number of oil and gas exploratory wells in 2011–2016

Source: Bloomberg, KGHM

In 2016, US dollar stabilized at a relatively high level in relation to other global currencies—the value of USD in relation to the currency basket (dollar index)—increased by nearly one percent. In the same period, the Polish zloty depreciated slightly against the euro and USD dollar.

In 2016, the average USD/PLN exchange rate (according to the National Bank of Poland) was 3.94 USD/PLN which was 4.5 percent higher than in 2015. In 2016, the average EUR/PLN exchange rate (according to the National Bank of Poland) was 4.36 EUR/PLN which was 4.5 percent higher than in 2015.

USD/PLN and EUR/PLN exchange rates in 2016 according to the NBP

Source: Bloomberg, KGHM

After months of depreciation against the US dollar, both the Canadian dollar and Chilean peso experienced a dynamic reversal of this trend in the first quarter of 2016. The increase in prices on the commodities market was one of the major reasons. In subsequent months, these exchange rates stabilized.

The USD/CLP exchange rate (according to the Bank of Chile) and USD/CAD (according to the Bank of Canada)

Source: Bloomberg, KGHM