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Base metals are in for a subdued 2024 with weak demand damping any bullish supply pressures, judging by the latest Reuters poll of analysts.
Only copper and aluminium are expected to see average higher prices this year and expected gains relative to 2023 are highly modest at 2.8% and 2.1% respectively.
Zinc, lead and tin are all expected to decline in price, albeit to an equally modest degree.
Nickel is the stand-out. It probably boasts the strongest demand profile thanks to its use in electric vehicle batteries, but is being swamped by a wave of new production from Indonesia.
The weakest performer last year is forecast to see another 23% average price slump this year, according to the median forecast of analysts participating in the poll.
Things start to look a little rosier next year with some bullish calls breaking with the still cautious consensus.
DEMAND DRAG
A gloomy macro picture is top of most analysts’ minds in terms of what to expect this year.
High interest rates, manufacturing recession in many Western economics and a stuttering Chinese growth engine are outweighing any bullish supply narrative.
Copper supply, for example, has recently seen something of a collective re-think in light of a sharp tightening in the raw materials segment of the market.
Analysts are now forecasting a copper supply-demand deficit of 35,000 metric tons this year, compared to an expected surplus of 302,500 tons in the previous poll in October.
But price expectations are relatively subdued with a forecast average London Metal Exchange (LME) cash price of $8,714 per ton for 2024, compared with Thursday’s settlement price of $8,437 CMCU0.
The demand drag is expected to lessen as the year progresses, the median forecast rising from $8,380 in the first quarter to $9,000 in the fourth quarter and to $9,300 in 2025.
Some super-bulls reappear in next year’s forecasts, Citi leading the pack with a call for copper to average $12,000 per ton.
Aluminium is the other bull call for 2025 thanks to a supply narrative of constrained capacity growth and periodic power disruption in China’s giant primary production sector.
Zinc and lead are seen as well supplied markets this year and the median forecast is for both to rack up significant supply surpluses of 300,000 and 71,820 tons respectively.
Tin CMSN0 is expected to register a marginal 1,000-ton supply deficit but with limited resulting price movement. The spectrum of forecasts for this year ranges from a low of $20,944 to a high of $29,500 per ton in 2024. Tin was priced in the middle of that range at $25,700 as of Thursday’s LME settlement.
KNIVES OUT FOR NICKEL
The LME nickel cash price CMNI0 slumped by 45% over the course of 2023 and more pain is in store this year with a median forecast for the average price to slide another 23%.
The nickel market is expected to be swamped by a tidal wave of new supply coming from Indonesia, which has set its sights on becoming a global battery metals hub.
Underlying the gloomy price outlook is an expectation that nickel supply will exceed demand by 240,500 tons this year and by another 204,000 tons in 2025.
This represents a massive glut in what is a three-million-ton annual global market.
Forecasting nickel prices has become a cost curve calculation. How far does the price have to fall to force out sufficient supply to rebalance the market?
There are two problems for nickel, however.
Firstly, the nickel cost curve is highly dynamic. For example, nickel ore prices have fallen sharply recently, lowering the cost of Indonesian and Chinese nickel pig iron, according to Macquarie Bank. (“Nickel update: dealing with oversupply”, Jan. 31 2024)
Secondly, many higher-cost nickel producers are in some way protected by government or central corporate assistance, Macquarie notes.
The supply rebalancing process may prove a protracted affair.
Macquarie argues there is limited further downside from the current LME three-month nickel price CMNI3 of $16,300 and most analysts seem to agree. The lowest forecast for this year is $15,200 per ton.
But any sustained rally seems highly unlikely given the growing weight of nickel surplus and signs it is seeping from intermediate product to refined metal segments of the market.
MARGIN OF ERROR
Quarterly polls can only offer a snap-shot of analyst sentiment at any one time and the latest comes amid a period of particularly weak demand from traditional price drivers such as the Chinese construction sector.
There is always the danger that immediate market dynamics determine the medium-term tone. But the median call can be surprisingly accurate.
This time last year analysts were in cautious mode and their wariness proved largely well founded.
The median forecast average copper price in 2023 was $8,625 per ton, which seemed bearish at the time but turned out to be a marginal $150, or 1.7%, above the actual outcome.
The median forecast on lead missed the mark by even smaller margin, coming in just $22 below last year’s average price of $2,138 per ton.
Analysts were too optimistic on zinc and aluminium, with forecasts 19% and 11% respectively over the actual, and too bearish on tin, which performed 9% better than expected.
Ironically, they were also too optimistic on nickel, last year’s average LME cash settlement price of $21,474 falling well short of the forecast $24,000 per ton.
There’s unlikely to be a repeat this year. Optimism is a scarce commodity when it comes to the nickel market.