The prices of copper and other base metals are expected to struggle in the coming months as the market is hit by feeble demand after widespread lockdowns to suppress the coronavirus pandemic have smothered industrial activity, a Reuters poll showed.
Analysts have pencilled in sharply lower prices and big surpluses for most industrial metals after the impact of the crisis froze large parts of the global economy, including the metals-hungry auto sector.
The previous poll was conducted in January just before the virus came to widespread notice in China and started to rock financial markets.
“We don’t think that the cuts to supply we’ve seen announced so far will come close to offsetting the loss of metals demand caused by the coronavirus,” said Kieran Clancy at Capital Economics in London.
The London Metal Exchange index of six base metals has already shed about a fifth of its value since mid-January while copper and aluminum prices have touched their lowest in more than four years.
The LME cash copper price is expected to average US$4,700 a tonne in the second quarter, a median forecast of 23 analysts shows, a 6-per-cent fall from Wednesday’s closing price and a 24-per-cent tumble from the previous forecast in January.
Analysts have marked down their full-year 2020 consensus forecast for copper by 16 per cent from the previous poll to US$5,200.
“We expect the price of copper to plumb new lows in Q2. However, given that we are now starting to see a recovery in other ‘risky’ assets such as equities, copper may start to outperform other base metals further ahead,” Mr. Clancy said.
Analysts expect a market surplus this year of 337,000 tonnes after predicting a deficit of 160,000 tonnes in January.
HUGE ALUMINIUM SURPLUS
Piles of excess aluminum are expected to weigh on the market as many smelters continue to churn out metal while demand withers because of the coronavirus, analysts said.
They have ratcheted up their forecast of a market surplus this year to 2.6 million tonnes, more than seven times the January estimate of 350,000 tonnes.
“Aluminum smelters currently benefit from falling input costs ... allowing some higher cost smelters to remain operational despite lower prices,” said Carsten Menke at Julius Baer in Zurich.
“Surpluses should thus build although not to the same extent as during the global financial crisis.”
Analysts have cut their 2020 forecast for cash aluminum prices by 9 per cent to US$1,618 a tonne.
NICKEL HURT BY STAINLESS
Nickel, mainly used as an ingredient in stainless steel, will also be burdened with excess material, but weaker nickel supplies because of shutdowns are expected to cap any surplus, analysts said.
“Western consumers are seen delaying purchases of stainless steel products while a stalling house-building market will further impact demand,” said John Meyer at SP Angel in London.
But supply will also be constricted since a ban on ore exports by Indonesia is likely to remain in place despite calls by local miners to lift it, he added.
A surplus of 89,000 tonnes is forecast for this year, but the market will flip into a deficit of 35,000 tonnes in 2021, the poll showed.
Analysts sliced their 2020 consensus forecast for LME cash nickel by 21 per cent since the last poll to US$12,072 a tonne, with prices averaging US$11,000 in the second quarter, down 4 per cent on the current price.
ZINC DEMAND ‘IMPLOSION’
Many analysts had already expected higher production to spur surpluses this year, but coronavirus is due to see those expand despite shutdowns in second biggest producer Peru.
“While one can make the argument that current prices are unsustainably low now, we think the demand implosion should outpace any supply cutbacks, particularly given the dismal auto and construction backdrops,” said Edward Meir at broker ED&F Man.
This year’s market surplus of zinc, mainly used for galvanizing steel, is forecast at 335,000 tonnes, three times the 108,000-tonne excess expected in January, the poll shows.
Analysts have rowed back their LME cash zinc price estimates for this year by 15 per cent to US$1,950 a tonne since the previous poll, while it is due to slump to US$1,800 in the current quarter, down 6 per cent from the latest levels.
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