Aluminium: ‘Sell the rally’ mentality here to stay
Although the London Metal Exchange aluminium price has managed to recover modestly from recent lows, we suspect this is mostly short-covering. The lack of producer restraint, growing exchange inventories, a weak demand outlook and the 7 million tonnes of oversupply forecast for 2020-2021 are likely to maintain the ‘sell the rally’ mentality in aluminium this quarter. Our second-quarter base case forecast remains at $1,450 per tonne.

Copper: Focus on SHFE tightness
Copper continues its rebound despite the release of catastrophic flash manufacturing purchasing managers’ index (PMI) data for April. We attribute the recent resilience of copper prices to numerous Covid-19-related supply disruptions (our estimate of which has grown again since last week) as well as a tighter refined market in China.

Because the world ex-China will transition to the re-opening of their economies as China has already done, the tightness seen on the Shanghai Futures Exchange could ultimately transpire into the LME market. It is in this vein that we continue to forecast copper prices extending their rebound in the second quarter. Also in this week’s analysis we discuss the divergence between the LME and SHFE forward price curves and update our tally of virus-related supply disruptions.

Lead: One of the worst performers recently

Despite around two-thirds of lead supply coming from recycling - a sector heavily disrupted globally while lockdowns inhibit scrap collection - lead has seen one of the worst price performances of the base metals. Lead prices are just 3% above the March low, while across the rest of the complex prices on average are up by around 12%.

Lead’s problem is a dire demand side given its exposure to the extremely depressed auto sector. But that means lead prices may have some catching up to do when the auto industry gets back on its feet. We forecast lead working back toward $2,000 per tonne by year-end.

Nickel: Glencore-sized supply disruptions
Nickel prices remain well supported and are even positioned to push higher again this week. Helping the tone is the scale of supply disruptions in this market. Our estimate for refined nickel production losses in 2020 related to Covid-19 measures has inched up to 129,000 tonnes this week, which represents 5.3% of global production. Put another way, this is approximately equivalent to the loss the market would feel if, for example, Glencore’s entire nickel business was shut for a full year.

Tin: Rebound likely to continue despite oversupply
While we contend that tin’s fundamental indicators are relatively more resilient than the other base metals, our over-arching view is that the chief driver of the recent price rebound has been of a macro nature. Despite a slightly negative price seasonality in the second quarter, we think that the rebound in tin prices could continue in the near term should the positive macro sentiment prevail, fundamental indicators remain resilient, and supply disruptions continue to affect the tin market.

Zinc: Latest ILZSG data overstating Chinese demand
Zinc has begun this week trading robustly, supported by constructive technicals, Peru’s lockdown extension and broader risk-on sentiment, at least for the time being. Zinc may also be getting some support from the International Lead and Zinc Study Group’s (ILZSG) preliminary January-February supply/demand data, which was not too bad. But we suspect the group is overstating Chinese demand.

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