CBA Economics has today released a research report which provides an update on the performance of industrial metal prices throughout 2017. The report coincides with the LME’s Asia Week Metals Seminar in Hong Kong, where industry leaders and key market players are converging to discuss commodity market trends across the region.
Commodities Analyst Vivek Dhar explains the key themes emerging this year:
“With so much price volatility in iron ore and coal markets this year, the solid performance of industrial metals has largely gone unnoticed. Aluminium and lead prices have increased since the beginning of 2017. While zinc and copper prices have now retreated to start-of-year levels, the two metals have enjoyed gains for the better part of 2017.
CBA Economics expects Chinese demand for industrial metals to remain stable in 2017 as policymakers look to shore up growth before elections later this year.
Supply disruptions cause copper supply deficit
Copper prices have been well supported through most of 2017 due to ongoing disruptions to mine supply, including from Indonesia’s massive Grasberg mine. “Disputes with labour unions and governments have already sidelined 2-2.5% of annual forecast supply this year,” Mr Dhar said.
CBA Economics’ average copper price forecast of approximately US$2.40/lb this year is up from 2016 and reflects copper markets moving from surplus to deficit. While average prices may be higher for the year, they may begin to trend lower through the remainder of 2017 as disruption to supply is resolved, Mr Dhar said.
“Spot copper prices still appear too high as they imply profits to virtually all producers, which usually reflects strong deficit conditions. It’s no surprise that prices have proven high enough to entice producers to increase output,” Mr Dhar said.
Chinese supply concerns boost aluminium prices
“Aluminium has been the best performing industrial metal so far this year,” Mr Dhar said. This performance is largely due to the market’s concern that Chinese policymakers will move to restrict aluminium output.
“As long as the spectre of Chinese supply restrictions remains, aluminium prices will likely continue to outperform other metals.”
Zinc deficit concerns ease
After being the best performing metal last year, zinc prices have edged lower in the last month as concerns ease about a shortage of the metal. Mr Dhar explains that zinc prices are likely to slide lower through 2017 and 2018 as new supply comes online and mines restart operations.
“We believe that the supply and demand dynamics in zinc suggest that deficit risks will ease through 2017 and 2018,” Mr Dhar said. “Despite these expectations, low global zinc stockpiles will help keep zinc prices elevated.”
To read the full report click here.