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As base metals have surprised most with their move over the current year, the last few weeks have seen a debate emerge on the basis of the rally. One side is convinced the move is aided by credit stimulus within China while the other side is increasingly optimistic on the outlook given the reversal in fortunes for the pack.
As indicated by the commentary below, some of the metals have run into technical resistances and it would be interesting to see how demand-supply mechanics emerge over the last quarter of the year.
Global zinc demand growth is set to marginally outpace production growth between now and 2020, as per advisory firm BMI Research. The company further forecast zinc prices to increase by a yearly average of 3.9% to 2020, following an average yearly contraction of 2.2% over the previous five-year period. Outside of China, other major zinc markets will see a 3% – 4% decline in output. South Korea and Japan will experience refined zinc output declines, owing to the global shortage and subdued prices. In contrast, India’s consumption was expected to increase from 690,000 t this year to 966,000 t by 2020, averaging a growth of 9.6% a year.
Since our last commentary, prices have cooled off from the over USD 2300 / metric ton level (touching USD 2372 / mt in early September, close to the resistance level indicated). For now it seems the metal has made its highs and may well languish in a trading range over the near term.
Copper prices continue to consolidate – the metal has traded in a range of USD 4310 per tonne – USD 5103 per tonne so far this year with an average YTD price of USD 4728 per tonne (14% below 2015 annual average). As of the end of August, copper stocks held at the major metal exchanges (LME, COMEX, SHFE) totalled 531,615 t, an increase of 49,747 t (+10%) from stocks held at the end of December 2015.
The International Copper Study Group (ICSG) released preliminary data for 1H2016 – world apparent refined usage is estimated to have increased by around 5% (570,000 t) compared with that in the same period of 2015 mainly due to strong Chinese apparent demand. Chinese apparent demand increased by around 11% based on a 20% increase in net imports of refined copper from the lower net import level in early 2015 and consequently lower apparent demand. Excluding China, world usage remained essentially unchanged. On a regional basis, usage is estimated to have increased by 5% in Europe and 7% in Asia (when excluding China, Asia usage declined by 2%), while declining by 17% and 4% in Africa and in the Americas respectively and remaining essentially unchanged in Oceania.
World mine production is estimated to have increased by around 4.5% (430,000 t) in the first half of 2016 while World refined production is estimated to have increased by about 3% (320,000 t) in the first half of 2016 compared with refined production in the same period of 2015: primary production was up by 2.5% and secondary production (from scrap) was up by 4.5%. The main contributor to growth was China (+6%), followed by the United States where production increased by 16%. Output in Chile and Japan, the second and third leading refined copper producers, increased by around 2% and 3% respectively.
After moving beyond the USD 11000 per metric ton, Nickel prices have trended lower over the last few weeks, dipping below the USD 10000 per mt temporarily.
Metals giant Glencore believes the nickel market is already in deficit and consumption had been significantly stronger this year, due to higher stainless steel production, increased demand from the battery market and tightness in the scrap market. This does indicate a bright future for the metal. Glencore believes nickel demand is up by 10% in 2016 over last year. Glencore estimates first half global nickel supply was down by 3% year-on-year, and will be down by 4% for the year to 1.9 million tonnes. The company estimates the nickel market returned to balance in the December quarter of last year and moved into deficit in the June quarter. For 2016, it forecasts deficits of around 100,000 tonnes of nickel. The company also has a positive long-term outlook for nickel, due to its use in lithium-ion batteries.
Aluminium demand has surprised on the upside in most regions so far this year and is seen growing 5% in 2016, slightly down from 6% last year, as per an estimate by FastMarkets. Chinese demand, which accounts for about half of total demand, should remain supported by the building and construction sector as well as the automotive and railway sectors. In North America, demand should also remain robust, mainly due to building and construction – the US housing market continues to enjoy a solid recovery.
Aluminium prices continue to trade around the higher end of the range for the year. Experts are expecting supply cuts likely to be delayed or even reversed given elevated current price levels, which may curb the necessary rebalancing of the market, capping price upside in the second half.