JOHANNESBURG (miningweekly.com) While precious metal markets were influenced by monetary conditions, industrial metals have managed to remain somewhat detached from generic economic conditions, with prices being determined by fundamentals of supply and demand that were, in many cases, specific to each metal, French corporate and investment bank Natixis said in its 2014 second-half metals review released this week.
Factors impacting on the industrial metals market included structural change in China and other government policies around the world, such as Zambias government struggling to administer a fair tax on mining companies and Indonesia, Zambia and the Democratic Republic of Congo trying to boost economic development by encouraging mining companies to process ores and concentrates locally.
Natixis said that, aided by cutbacks in output by western producers, as well as Chinese smelters, the aluminium market looked set to experience its first yearly deficit for eight years, which had supported an improvement in aluminium prices, although this gain has been split between modestly higher London Metal Exchange (LME) prices and a further escalation in aluminium premiums.
In the very near term, there is a risk that higher Chinese output of aluminium, accompanied by higher exports of aluminium products, could lead to near-term weakness in aluminium prices, the bank said, noting that over the period 2015 to 2016, however, Natixis expects the shift towards deficit to become more firmly entrenched within the aluminium market.
As a result, aluminium prices are expected to push higher.
Natixis said that, after averaging about $1 860/t in 2014, it expected aluminium prices to rise to an average $2 070/t in 2015 and $2 240/t in 2016.
Further, in terms of copper, the bank said a surplus was expected to soon become visible, which was, in turn, expected to lead to further weakness in prices over the period 2015 to 2016.
We are, therefore, projecting a decline in copper prices to somewhere around $6 335/t in 2015. This would be followed by a gradual recovery in copper prices during 2016, averaging $6 500/t, as market expectations focus increasingly on prospective deficits in the period out to 2020 rather than the surplus in the market during 2015 to 2016, Natixis said.
Meanwhile, global demand for lead remained weak in 2014 owing to a second consecutive yearly decline in Chinese apparent demand.
While other base metal markets with stronger fundamentals have seen prices push higher, lead prices have instead remained trapped in a narrow range, the bank said, adding that its analysis of supply and demand suggested that the lead market would run a cumulative deficit of perhaps 20 000 t over the period 2015 to 2016.
Therefore, Natixis forecast a modest increase in lead prices from an average of around $2 120/t in 2014 to $2 245/t in 2015 and $2 195/t in 2016.
Meanwhile, the bank said perhaps the greatest potential uncertainty surrounding the outlook for nickel related to aspects such as the strength of Chinese demand and the size of unreported inventories held in China.
Our central forecast anticipates a period of deficit during the first half of 2015, resulting in an average LME nickel price of around $19 000/t over 2015 as a whole, although there is scope for substantial variation around this mean. By 2016, we would expect the market to have settled more closely upon its longer-term equilibrium, hence our forecast for an average price of $17 375/t for that year, Natixis said.
Further, despite forecasts for modest demand growth over the coming two years, the global zinc market was expected to tighten further as supply becomes increasingly constrained, and new mines are not expected to arrive until existing inventories are dangerously close to depletion.
Against such a backdrop, Natixis said it would expect to see substantial upward momentum in zinc prices over the period 2015 to 2016.
Natixis expected events in the US to exert the biggest impact on gold prices going forward, stating that as the US economy improved, investors need for a safe haven dissipated.
With this economic improvement comes a strengthening dollar as the US bond market pushes yields higher in anticipation of interest rate hikes. These factors are expected to have a mildly negative effect on gold prices over the forecast horizon, given the substantial rally in the dollar and rise in US yields that has already taken place so far this year, Natixis said.
Further, there was a risk that miners could return to hedging future output if gold prices threatened to fall below the cash cost of production, which represented a
potential source of supply in the market, which could help to accelerate any decline in prices.
Therefore, Natixis base forecast was that gold prices would average $1 170/oz in 2015 and $1 180/oz in 2016.
Meanwhile, silvers strong correlation with gold meant that the price of silver had also dropped as a result of a stronger dollar and US economy.
Based on our positive outlook for the US economy, and additional downside risks attaching to silver prices, [such as] low cash cost of production and potential for sales from exchange-traded products, our forecasts envisage an average silver price of $15.8/oz in 2015 and $16.1/oz in 2016, the bank said.
Natixis further said that, over the last two years, supply-side issues had been the main drivers behind the price of platinum.
Along with frequent strikes in South Africa, which have caused supply cuts, falling prices have forced producers to cut back output at their higher-cost operations, the bank said, adding that, since the end of the strikes in July, the price of platinum had collapsed, as a result of extreme weakness in demand.
At the current low prices, we could see an increase in Chinese platinum jewellery demand once again, especially if the platinum/gold price ratio continues to fall. While we do not expect a strong increase in European automobile demand, replacement of Europes ageing car fleet should be enough to support moderate growth in demand for autocatalysts over the coming two years, the bank said.
Natixis forecast the platinum price rising to $1 450/oz in 2015 and $1 550/oz in 2016, while palladium prices were expected to increase to $770/oz in 2015 and $740/oz in 2016.