Disappointing economic data from China (on trade and from the automotive sector) cannot really reverse the positive sentiment in base metals. Optimism about a possible positive outcome of the trade talks is the undercurrent driving the price increases. With an eventual positive outcome, prices in base metals continue to rise, but to some extent this outcome is already priced in now. After that, fundamental forces take over and these show a mixed picture in base metals.
- Aluminium: good availability ensures little price volatility
- Copper: price trend as barometer of trade talks
- Nickel: stronger demand growth in stainless steel sector and electric cars
- Zinc: production grows, while automotive sector demand is weak
Plenty of aluminium
The price of aluminium has risen 2% this year. Compared to the relative price increase in the other base metal markets, this is limited. This is mainly because the availability of aluminium is good and will remain so for the time being. US sanctions on Rusal - a major Russian smelter - have been lifted and this is keeping supply high. In particular, stocks in China - the biggest producer of aluminium - are in the spotlight. Because the level of stocks in Shanghai has a close relationship with the trend in the aluminium price (see figure). Moreover, China's production and exports are increasing. That leaves its mark on market sentiment and price. ABN AMRO expects the aluminium price to fluctuate between USD 1,800-2,000/t in 2019.
Copper price trend
Copper prices have risen 10% this year. The market is currently facing a shortage and this is contributing to the higher price. The direction of the dollar is also significant for the trend in copper prices (see figure). But since the third quarter of 2018, that relationship has been much less significant. The EUR/USD fluctuated between USD 1.13 and 1.16, while the copper price was a lot more volatile. The progress of trade talks between the US and China has a lot of influence on the price direction. The copper price reacts quickly to any positive or negative news report. With positive news, optimism increases and the price rebounds. As a result, the copper price has the character of a barometer of the talks. The hatchet is likely to be buried by the end of March and then the shortfall in the market gives further support to the copper price.
Demand for nickel
The price of nickel has risen 24% this year, making it the strongest riser of all base metals. The positivism from trade negotiations is helping, but growth in demand from the stainless steel sector and the battery sector (for the electric car) in particular are making a solid contribution. Higher nickel prices resulted in a rise in stainless steel prices (see figure). In addition, the price for sheet steel has increased due to restocking in many regions, which also contributes to the higher stainless steel price. This and next year, the nickel market will face shortages. Demand growth continues (especially the outlook for the electric car is positive), while capacity expansions remain limited. This puts pressure on stocks and ensures that the price of nickel remains relatively high.
Rising zinc production
The zinc price has gained 12% since the start of 2019. The zinc market is currently still facing shortages and relatively low inventories. There is an upward price effect from that. However, mine production will increase in 2019, putting pressure on the refined zinc market. Because with higher ore supply, smelter capacity utilisation rates also remain high. On top of this, the price of zinc is now relatively high and zinc smelters want to take advantage of this. The higher price of zinc translates into higher prices for galvanised steel (see figure). While demand for galvanised zinc continues to grow, the pace is slowing considerably. This is mainly due to declining activity in the automotive sector. This puts pressure on prices during 2019.
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Source: ABN AMRO.
