Aluminium has been the hardest hit base metal over the past week, after relentless selling pressure took it to fresh multiyear lows while its LME peers generally consolidate or try to rebound. Aluminium is seeing far less in the way of supply restraint or disruptions than the other metals. But this market is technically oversold and overdue a rebound now. Unless producers can contribute to rebalancing the market, rallies will only be selling opportunities.
Copper: Volatile price recovery in Q2
Copper was the worst performer of base metals complex in the first quarter of the year, realizing a loss of 20% - in fact its poorest performance since the third quarter of 2011. After the macroeconomic shock of the past quarter, we expect a recovery in copper prices in the second quarter while the dust settles. Nevertheless, we contend that the global economic recovery will be slow and low in the months ahead, thereby eliciting volatility and producing a bumpy rather than a smooth rebound in prices.
Lead: Demand, supply and price outlooks lowered
Now that the initial adjustment to the impact of the Covid-19 virus has run its course, lead prices have started to oscillate sideways while they react to noise in the wider market. This is likely to continue until there is a better understanding of how long lockdowns are going to last and how much damage has been done to both supply and demand. We continue to think that demand shock will be the sharpest. Uncertainty will keep would-be buyers of vehicles away from dealerships and auto manufacturers are unlikely to ramp-up production until demand shows signs of recovering. We have revised our demand forecasts lower this week and our supply outlook has been lowered too.
Nickel: Further supply-demand balance revisions
We have incorporated the latest revisions to our stainless steel market outlook into our nickel market balance, along with the nickel production disruptions discussed here last week. This has raised the global refined nickel surplus for 2020 from 34,000 tonnes to 66,000 tonnes. We still believe prices can average around $12,000 per tonne in the second quarter though, so our base case price forecast remains unchanged for now.
Tin: Mixed fundamental indicators
The LME tin price has rebounded by around 10% since it plunged to its lowest level since July 2009 at $12,715 per tonne on March 20. The rebound has been driven by some short-covering, a stabilization in broad risk sentiment, and tighter supply from Indonesia. We expect a recovery in prices in the course of the second quarter although we acknowledge that the refined tin market is likely to post a material surplus this year after accounting for the latest revisions to our supply-demand balance forecast.
Zinc: Supply disruptions helping prices consolidate
Zinc prices continue to consolidate, helped by the emergence of virus-related supply disruptions. Indeed, producers’ quarterly reporting season is almost upon us with reports likely to be under closer scrutiny than usual. But while we remain doubtful that this could be the catalyst for a strong price rebound, even if the market gets a sense of larger disruptions than those currently priced in, it could at least reduce the risk to prices of lower lows in the second quarter.
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