 "Base metals outlook: Prices likely to improve")
The global aluminium market will remain in deficit in 2015, although the scale of the supply shortfall is set to narrow from last year's level, as production growth rates are expected to remain high, especially in China, where output growth could reach nine per cent. The global economy remains riddled with uncertainties but, nevertheless, we remain confident that aluminium demand is set for another year of expansive growth, with 5.8 per cent forecast. That said, there are certainly some major headwinds in some regions - notably Europe, likely to keep Q1 of 2015 buying activity lean, at best.
Despite the steep fall in copper prices at the start of this year, fundamentally, this market is not in bad shape at all. And, if anything, the outlook is getting tighter, not looser. We are now forecasting a small supply deficit this year, as we believe demand remains fairly resilient and sub-$6,000/tonne prices will see the Chinese State Reserve Bureau stockpiling more metal. Meanwhile, the supply side is on course to underperform significantly, with 2015 already well on the way to being a record year in terms of unplanned disruptions. So, our view is that copper prices have become disconnected from the underlying fundamentals, which is not sustainable. Therefore, we are still looking for copper to end this year comfortably above the Q1 lows and well on the way to recovering the losses inflicted since mid-2014.
Like copper, lead is another market that has underperformed its fundamentals. Exchange stocks are low relative to consumption, destocking in China has left inventories lean there, and supply and demand are roughly balanced, overall. In addition, production cuts are emerging and the lower prices are making it more difficult for secondary producers to get scrap. So, as with copper, there is a case for lead pricing to improve during this year, and that is our baseline assumption.
The nickel market got too bullish, too soon, in 2014. In the end, the Indonesian ore export ban didn't improve the overall fundamentals anywhere near as much as the nickel bulls had hoped. But the supply-demand balance is still tightening, and 2015 is when that will really start to be felt. Nickel prices will probably remain volatile in the short term given broader issues but, once the dust settles, falling nickel pig iron production and the end to the relentless London Metal Exchange stock build should lay the foundation for a sustainable improvement in prices this year and the next.
Like nickel, the zinc market is waiting for the fundamentals to tighten. The expectation of tightness was priced in by last year's rally but closure of the giant Century mine in Australia is the key event in the bull story now and that closure will not happen until later this year. It remains to be seen how much effect it, and the closure of other mines, will really have on the concentrate market and, ultimately, the refined market. Our view has been that the supply gap the zinc bulls are looking for won't be a big deal.
All eyes in the tin market will be on China, Indonesia and Myanmar this year, to see how crucial supply-side issues pan out. There is the potential for production to accelerate further in China, fuelled by the continued emergence of Myanmar as a major source of concentrate, while there is the potential for Indonesian supply to be further constrained by the government's trade policy tinkering. Overall, we are neutral on tin's fundamental outlook in the short to medium term.
Despite the steep fall in copper prices at the start of this year, fundamentally, this market is not in bad shape at all. And, if anything, the outlook is getting tighter, not looser. We are now forecasting a small supply deficit this year, as we believe demand remains fairly resilient and sub-$6,000/tonne prices will see the Chinese State Reserve Bureau stockpiling more metal. Meanwhile, the supply side is on course to underperform significantly, with 2015 already well on the way to being a record year in terms of unplanned disruptions. So, our view is that copper prices have become disconnected from the underlying fundamentals, which is not sustainable. Therefore, we are still looking for copper to end this year comfortably above the Q1 lows and well on the way to recovering the losses inflicted since mid-2014.
Like copper, lead is another market that has underperformed its fundamentals. Exchange stocks are low relative to consumption, destocking in China has left inventories lean there, and supply and demand are roughly balanced, overall. In addition, production cuts are emerging and the lower prices are making it more difficult for secondary producers to get scrap. So, as with copper, there is a case for lead pricing to improve during this year, and that is our baseline assumption.
The nickel market got too bullish, too soon, in 2014. In the end, the Indonesian ore export ban didn't improve the overall fundamentals anywhere near as much as the nickel bulls had hoped. But the supply-demand balance is still tightening, and 2015 is when that will really start to be felt. Nickel prices will probably remain volatile in the short term given broader issues but, once the dust settles, falling nickel pig iron production and the end to the relentless London Metal Exchange stock build should lay the foundation for a sustainable improvement in prices this year and the next.
Like nickel, the zinc market is waiting for the fundamentals to tighten. The expectation of tightness was priced in by last year's rally but closure of the giant Century mine in Australia is the key event in the bull story now and that closure will not happen until later this year. It remains to be seen how much effect it, and the closure of other mines, will really have on the concentrate market and, ultimately, the refined market. Our view has been that the supply gap the zinc bulls are looking for won't be a big deal.
All eyes in the tin market will be on China, Indonesia and Myanmar this year, to see how crucial supply-side issues pan out. There is the potential for production to accelerate further in China, fuelled by the continued emergence of Myanmar as a major source of concentrate, while there is the potential for Indonesian supply to be further constrained by the government's trade policy tinkering. Overall, we are neutral on tin's fundamental outlook in the short to medium term.
The author is principal analyst, Metal Bulletin Research, London