FORECAST: Further volatility on the horizon for aluminium - Sucden Financial

Despite healthy economic fundamentals across metals markets, geopolitical uncertainty casts a shadow over Sucden Financial’s altogether positive market outlook, the commodity broker’s Quarterly Metals Report Briefing highlighted.

In its second-quarter trading ranges, the broker omitted forecasts for both aluminium and nickel following the recent storm of uncertainty surrounding the metals’ price activity.

Affirming “unprecedented times for aluminium,” Sucden’s chief executive officer, Michael Overlander, addressed the wider implications of the US Treasury Department's decision to sanction Russian aluminium producer UC Rusal.

“The reason why the first round of sanctions caught people on the hop was much to do with the pre-sanction list released back in January. Everyone was lulled into a false sense of security,” Overlander said.

“In the environment of exchange-related matters, the general licensing aspect has knock-on effects across the rest of the market, throwing off the hedging landscape. The question now arises: Will those participants wanting to hedge be able to?” Overlander asked.

While speculation continues to cloud the light metal’s price sentiment, Sucden can identify greater components at play across the aluminium complex.
“The curtailment of alumina could have knock-on effects on aluminium,” Geordie Wilkes, head of research at Sucden Financial, said.

With eyes on China’s involvement in the market, Sucden’s outlook remains tentative.

Plagued by a poor performance in the first quarter, aluminium’s trajectory remains skewed, with market participants potentially taking divergent paths to alleviate a global supply shortfall.

Metal Bulletin Research forecast the aluminium price at $2,300 per tonne for the second quarter, with nickel forecast at $14,260 per tonne.

Nickel: caught in a storm of volatility
Similar uncertainty consumed nickel’s activity in mid-April. Anticipating a continuation of mixed sentiment toward the metal, Sucden’s forecast turned predominantly to Tsingshan.

As the world’s largest stainless steel producer, Tsingshan has the potential to move the market in either direction, according to Wilkes, although concerns of oversupply may prove to affect nickel demand.

Electric vehicles remain nickel’s most consistent momentum driver, and Sucden cited China’s strong step toward electrification as a potential pacesetter in the potential uptrends for nickel.

Comparatively, the London Metal Exchange’s decision to trial electronic trading will put nickel in the spotlight.

“I think it clearly outlines the LME’s intentions going forward,” Wilkes said.

Geopolitical jitters weigh down copper
Sucden maintained a neutral view on copper, specifying that weak Chinese demand could potentially prompt pricing for the red metal to dip below $6,500 per tonne.

From a commodity broker’s outlook, the question on copper is whether strong demand outside of China is enough to facilitate growth.

With speculator sentiment waning, geopolitical volatility has entered the fray. Yet Sucden’s report notes that cross-nation growth remains supportive of copper in the second quarter.

Consolidation remained in effect throughout April for copper prices. Wary of labor negotiations at BHP Billiton’s Escondida mine in Chile, Sucden forecast that prices could move past $7,300 per tonne if disruption continues.

The most recent talks in Chile, held on Thursday April 26, ended without a deal.

There were similar forecasts in place for lead, with Sucden cautious of stock drawdowns after LME stock levels dipped to their lowest levels since 2009 in February of this year.

Battery production remains a key driver of the metal’s activity. And coupled with rising mine supplies set for 2018, Sucden forecast a continuation of lead’s tight fundamental outlook, with prices expected to spike downward from $2,200 per tonne.

This past week’s drop in the LME's three-month zinc price was influenced by more than 60,000 tonnes of metal being delivered into Antwerp.

Sucden’s analysis outlined a sluggish year for the metal. And despite large-scale deliveries this week, the broker’s forecast remains bullish for zinc at $3,000-3,500 per tonne.

With first-quarter demand stable for tin, Sucden remains confident that interest in the metal will stay intact, and has forecast prices to range from $20,500-23,000 per tonne.

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