Q2 2020 price forecast performance review
According to the results of Fastmarkets’ Apex for the second quarter of 2020 published this week, Fastmarkets’ base metals research team was the second most accurate price forecaster for nickel (99.06%), lead (99.58%) and zinc (99.42%), and fourth most accurate in copper (97.32%) last quarter. Overall, we were the second most accurate forecaster across all six base metals in the second quarter 2020 with an average accuracy of 98.85% - missing the top spot by just 0.02%.

Our forecasts for the third quarter are universally more bullish than the Apex weighted-average consensus and we are comfortable with this stance given the strong momentum prices are carrying.

Aluminium: Momentum, not fundamentals, driving prices
LME aluminium is on course to close July positively, but we are mindful that the strong recent momentum has left this market in need of a pullback and a period of consolidation. This could emerge in August and could strengthen aluminium's technical configuration, laying the foundation for a further move to the upside in the coming months - at least on purely technical grounds. To achieve such a move, however, would require momentum to again overshadow the far less buoyant fundamental forces weighing on this oversupplied market.

Copper: Price rally paused, not ended
The rally in copper prices has paused since July 13, reflecting some macro and fundamental factors at play. That said, we think the current consolidation will prove transient and that upward pressure will resume, probably after the summer months when demand is likely to pick up. While we acknowledge the relative weakness in copper's present fundamentals compared to a year ago, we expect the market to focus on the longer-term, positive big picture.

Lead: Managing to consolidate despite heft stock rise
LME lead prices peaked at $1,886 per tonne on July 13, and have since been consolidating around $1,790-1,850 per tonne. They have done well to hold up considering the 87% rise in LME stocks last week and the 50% rise in SHFE stocks the week before, which highlights a well-supplied market with plenty of off-exchange inventory. But, then again, that is nothing we did not already know and exchange stock levels had become perilously low, so their rebound need not undermine prices.

Nickel: Elon Musk has a fair point
Our research shows that, over the past three years, class-2 nickel production growth has averaged 12.7% year on year in each quarter, while class-1 production  has fallen by an average of 3.6% in each quarter. Over the period, the share of class-2 nickel in total world production has soared from 47% to 62%, driven mostly by NPI growth in Indonesia. Given the unsuitability of most class-2 nickel for Li-ion battery production, Elon Musk is right in that recent trends need to change to focus on class-1 and battery-appropriate nickel production, not NPI and class 2. But that requires a higher nickel price to incentivize investment in such capacity.

Tin: More resilient than its peers
Since the start of the year, the LME tin price has gained around 3%, the second-best performer after copper (+4%). Although negative macro risks have emerged lately, our base case remains that the massive intervention from policymakers to support the economy should continue to push base metal prices higher, including tin. Tighter refined tin output and the drawdown of visible tin inventories further boosts the bullish narrative for this market.

Zinc: Price is consolidating
Zinc prices remain capped for the moment by the long-term downtrend line from the February 2018 and April 2019 highs. Currently, that line is creating resistance around $2,275 per tonne, but a further rejection may prompt more consolidation and profit taking before the bulls are willing to try to drive through it and higher again. Signs of further supply disruptions may be the catalyst required to set the breakout in motion.

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