INTERVIEW: Trade issues will continue to dampen base metals sentiment in 2019 – INTL FCStone’s Meir

The market cannot get too excited about base metals prices in 2019 while the trade conflict between the United States and China continues to dominate headlines, INTL FCStone analyst Edward Meir said.

Meir was the 2018 winner of the base metals price prediction category in Fastmarkets’ Apex competition.

Speaking to Fastmarkets MB, Meir said: “The year ahead is going to be much of the same and there will be no resolution to the issues between China and the US.”

“There may be crumbs of change but nothing big and it will be dragged out for another few years. China thinks in decades – they can just wait Trump’s reign out,” Meir added.

2018 started off strongly for base metals but sanctions, global trade tensions and tariffs dampened prices and all base metals closed in negative territory year on year.

“Last year was a story of two halves. We had a perfect storm pushing up prices and in March and April commodities were hot,” Meir said.

“It all looked good until the China tariffs story hit and everything went downhill on uncertainty. It was a poor second half for metals and in December we hit fresh lows,” he added.

Meir said he believes the two economic giants of China and the US will continue to “butt heads into 2019” and that long-term cross-border investments will suffer as trade flows remain unpredictable.

Low inventory on exchanges for base metals is perceived by some as a bullish factor for prices in the upcoming year. Total stocks in London Metal Exchange-listed warehouses are currently just above 1.8 million tonnes, down from their peak of 7.6 million tonnes in July 2013.

“The inventory argument becomes difficult to sustain given the deteriorating macro landscape we envision going into 2019 and the negative impact it will have on demand,” Meir argued.

Copper’s three-month LME price closed 2018 at $5,965 per tonne down 17.3% from the start of the year. It was most recently trading at $5,910.50 per tonne.

Base metals predictions for 2019
For copper, INTL FCStone forecasts prices fluctuating between $5,650 and $7,200 per tonne in 2019.

“For the year as a whole, we see prices averaging $6,190. The key point to remember about the copper outlook going into 2019 is that unlike in 2015 and 2016, we are not overloaded with copper stocks,” Meir said.

“But by the same token, weaker demand in the wake of slower global growth could replenish inventories by late next year and keep outsized rallies in check.

“Smelting bottlenecks and incremental Chinese demand materializing from the scrap ban should provide support and prevent prices from breaking much below the low end of our forecast range,” he added.

INTL FCStone forecasts aluminium trading at $1,720-2,330 per tonne – with an average price of $1,950 per tonne in 2019. The LME three-month aluminium price was most recently trading just below $1,900 per tonne.

“The aluminium outlook does not seem as bullish as it was a few month ago. We have seen a sharp drop in alumina [prices] and the two correlate closely,” Meir said.

Fastmarkets MB’s benchmark fob Australia index was calculated at $374.12 per tonne on Thursday January 24 – down 47% from the April peak of $707.75 per tonne following a force majeure at Hydro’s Alunorte alumina refinery.

“Aluminium should retain a measure of support but we see this tightness not being as pressured as it was in 2018. We say this in view of our belief that the Rusal situation will likely be resolve over the next several weeks,” Meir added, referring to US sanctions on the Russian aluminium producer that are expected to be removed soon.

On zinc, Meir forecasts a 285,000 tonne deficit for 2018 for zinc, followed by a 150,000 tonne shortfall for 2019.

“We are not that bullish on zinc going into next year, as we see falling steel/galvanizing demand, coupled with rising mine supply making the upside case hard to make,” he added.

INTL FCStone forecasts zinc trading between $2,150 and $3,210 in 2019 with a yearly average of $2,320 per tonne.

For lead, Meir notes that a host of new zinc mines are expected to come on stream next year and this should theoretically generate a mini-surge of byproduct lead, but this may not be the case.

Over the course of 2019, INTL FCStone see lead prices trading at an average of $1,920 per tonne, with a high/low range of $1,680-$2,350 per tonne. The LME three-month price was most recently trading around $2,060 per tonne.

“Lead’s inventory picture looks somewhat constructive to us going into 2019; stocks on the LME currently stand at 110,000 tonnes, their lowest level since 2009,” Meir said.

“Next year’s slight deficit (on top of a more substantial one this year) should keep lead’s ending stock ratio at a still tight 1.6 weeks, providing a measure of support to prices going forward,” he added.

INTL FCStone forecasts nickel prices in 2019 trading between $9,850 and $14,400 per tonne with an average price of $11,100 per tonne.

“Although nickel will indeed play a pivotal role in the EV story, at least for now, the complex will have to grapple with alternative and cheaper sources of stainless supply coming predominantly from Indonesia that could undercut its role,” Meir said.

“This may be why the complex closed 2018 on such a dismal note, ringing ominous warnings for 2019 as well,” he added.

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