Metals Prices
Datetime:2014-02-19 Hits:
Metals Prices
Slower demand growth, rising supply to drive base metals prices in 2014
By Greta Bourke - Tuesday, January 21, 2014
Slower Chinese demand growth and improving supply will drive price movements for the industrial metals complex in 2014, according to Capital Economics.
The prices of almost all industrial metals fell last year as investors lost confidence in commodities as an asset class and the link between metals and equity prices broke down, Capital Economics said in its Commodities Analyst report.
A temporary reprieve in 2H13 was spurred by a lift in Chinese demand, but this will not last as China is aiming to restructure its economic growth away from investment and production towards consumption and services. "GDP growth will slow further and become fewer commodities intensive in the coming years," the report reads. "The government's aim to curb credit growth will act as a further constraint on commodity imports."
At the same time, mine supply is coming on line. Some producers may try to delay projects due to the recent dip in prices, but this is unlikely to affect the supply pipeline in 2014-15, according to the report.
Capital Economics expects copper, iron ore and steel prices to fall in 2014 on strong supply growth and subdued demand. Lead and zinc are also likely to experience a drop in price as new LME warehousing rules come into effect and "unlock stocks" which will improve supply.
PRICE FORECASTS
Copper mine supply is expected to increase in 2014 which, together with lower Chinese demand, should put downward pressure on the price. The consultancy has an end-2014 copper price forecast of US$6,350/t (US$2.88/lb) and an end-2015 forecast of US$6,000/t. "However, the copper market remains one of the tighter base metal markets and has a propensity to suffer from supply disruptions. So, price risks may be to the upside," Capital Economics said.
The price of iron ore was supported in 1H13 by low stocks at Chinese ports. Stocks then rose steadily in the second half, which supports weaker prices in 2014. "Prices will be further depressed with new capacity coming on stream." The end-2014 price forecast for iron ore is US$110/t, with end-2015 set at US$90/t.
The consultancy is anticipating another year of falling steel prices as China moves away from investment-led growth and overcapacity in the sector continues. "Assuming some consolidation in the Chinese steel sector in 2014, prices could stabilize in 2015," Capital Economics said. The steel price is expected to finish 2014 at US$625/t and rise to US$650/t by end-2015.
The recent ore export ban in Indonesia will mainly affect the global supply of nickel ore, as the country is the largest exporter. "The impact will, however, be tempered initially by the exceedingly high level of global stocks." China reportedly has enough nickel ore in stock to cover six months of consumption. Capital Economics raised its end-2014 price forecast to US$15,500/t, with end-2015 seen at US$15,000/t.
Aluminum prices are below the cost of production of much of the world's capacity. "High premiums helped aluminum production in 2013," Capital Economics said. However, premiums will likely fall in 2014 as stocks become more readily available. Still, producer cutbacks and demand growth should lift aluminum prices this year and the consultancy has an end-2014 forecast of US$2,000/t and end-2015 of US$2,250/t.
Lead is forecast to fall to US$1,900/t by end-2014 and end the following year at US$1,950/t. Zinc will fall to US$1,980/t by year-end but bounce back to US$2,100/t by end-2015. The tin market deficit will support a price of US$24,000/t by year-end which will be sustained through end-2015, according to Capital Economics.
