Copper prices are expected to extend their rebound in coming months as recovering demand in top metals consumer China and mine disruptions create a larger than expected deficit, a Reuters poll showed.
Benchmark London Metal Exchange copper bounced off an 18-month low touched in early January, climbing to a nine-month peak in mid-April, although the rally has faltered since then.
The LME cash copper price is expected to average $6,605 a tonne in the third quarter of this year, a median forecast of 28 analysts shows.
That is about 3 percent higher than Tuesday’s close and an upgrade of 2 percent on the previous consensus estimate in the January poll.
“The (Chinese) stimulus package has in general been beneficial for base metals, and in copper in particular,” said analyst Samuel Catalano at Credit Suisse in London.
Analysts sharply boosted their expectations of a copper market deficit in 2019 to 205,500 tonnes, more than tripling their previous consensus forecast of 64,000 tonnes.
“With supply disruptions making a return and Chinese mine output stagnant, global mine output will barely grow over H2 2019,” analyst Colin Hamilton at BMO Capital Markets said in a note.
The LME index of industrial metals has gained 6 percent so far in 2019, lifted by optimism over a potential U.S.-China trade deal and hopes for a recovery in the Chinese economy.
ZINC SWINGS TO SURPLUS
Zinc prices, the second best LME performer year-to-date after nickel with gains of 14 percent, are expected to be weighed down by rising supply this year.
The refined zinc market has been tight due to bottlenecks in processing rising mine output into metal, but analysts now expect excess supplies to weigh on prices.
The cash LME price of the metal, which is mainly used for galvanizing steel, is expected to average $2,738 a tonne in the third quarter, down about 8 percent from Tuesday’s close.
“As treatment charges remain elevated, more metal will find its way into the market and as a result, zinc prices could struggle going into the second half of the year,” said analyst Edward Meir at broker INTL FCStone in New York.
Analysts swung their consensus forecast for the global zinc balance for 2019 to a surplus of 20,000 tonnes from a deficit of 50,000 tonnes in the January poll. They expect global supplies to balloon to a surplus of 314,000 tonnes in 2020.
NICKEL BOOSTED BY EVS
Nickel, currently largely used to make stainless steel, has been the best LME performer with gains of 15 percent this year due to expectations of deficits and rising demand for use in electric vehicle batteries.
While prices have retreated from a six-month peak hit in February, analysts expect LME cash nickel prices to rebound by the third quarter to an average of $13,227 a tonne, up 9 percent from the current level.
“Speculators are often buying nickel futures as a cheap and liquid tool to gain exposure to the big theme of electrification,” said analyst Daniela Corsini at Intesa Sanpaolo Bank in Milan.
ALUMINIUM DEFICIT UPGRADED
A bigger than expected deficit in aluminum is due to help support prices, the poll showed.
Supply growth in China has started to slow down as declining prices put pressure on high-cost smelters, said analyst Carsten Menke at Julius Baer in Zurich.
“Some of them need prices of $2,000 per tonne or more to be profitable, pointing towards a rising risk of capacity cuts going forward,” Menke said.
The LME cash aluminum price, which hit a 3-1/2 month low this week, is expected to recover in coming months, trading at an average of $1,984 a tonne in the third quarter, according to the analysts’ consensus forecast, up 11 percent from the current price.
Analysts have sharply boosted their consensus estimate of this year’s market deficit to 868,240 tonnes from 490,000 in the previous poll.