RESEARCH: Key takeaways from the latest Base Metals Market Tracker

These include an increase in our copper mine disruption estimates, upgrades to our production outlook for Indonesian nickel pig iron (NPI), a smaller refined zinc surplus, and an upgrade to our zinc price forecasts.

Aluminium: Big disconnect between price and fundamentals
Aluminium has extended its uptrend on the London Metal Exchange, almost reaching a price of $1,800 per tonne, with the weight of money in financial markets continuing to overshadow the fundamentals.

Given the 4 million tonne surplus this year, equivalent to 6.7% of world consumption, we would argue that aluminium is the base metal most out of sync with its fundamentals.

But prices may have finally reached an area of more stubborn technical resistance that could cap the upside. The trading range of $1,730-1,835 per tonne dominated throughout the second half of 2019, and this may contain price movements for the time being.

A breakout would open the door to yet higher prices and an even wider disconnect from the fundamentals. There is a purely technical case for a revisit to $2,000-2,100 per tonne in the coming months if the strong reflationary momentum remains in place.

Copper: Mine supply focus
The focus of our copper analysis this week is firmly on the supply side while we discuss some highlights from updating our mine production database and our disruptions log. And while macro themes remain the principal driver of prices, there were also a number of fresh supply-side developments over the past week that helped copper to reach a new high.

On disruptions, we estimate that unplanned losses in 2020 will amount to 1.823 million tonnes for all causes, including 1.151 million tonnes attributed to Covid-19.

Base Metal Tracker subscribers are referred to our downloadable Excel file for details of these disruptions.

Lead: Still working higher amid bullish momentum
LME lead prices continue to trend higher, but they have not yet recaptured the high ground seen in mid-January – unlike copper, zinc, nickel and tin. Given the reflationary momentum driving all metals, it seems like just a matter of time before this does happen.

We review and discuss the latest data from the International Lead & Zinc Study Group (ILZSG) this week, which showed mine and refined output and demand all continuing to recover in June, as expected.

While the global refined lead market remains in a supply surplus, the ILZSG estimates a far smaller level of oversupply so far this year than we do.

Nickel: Indonesia has overtaken China in NPI
With nickel prices striving to return to $15,000 per tonne, we discuss in this week’s nickel analysis our key takeaways from the miners’ second-quarter reporting season, and we raise our Indonesian NPI production numbers for 2020 and 2021. Growth this year now looks like being at a rate of 52.5%.

Our data also shows that April-June this year was noteworthy as being the first quarter in which Indonesia overtook China in NPI production. We do not see China regaining its lead, given the scale of capacity investments in the pipeline in Indonesia, and while the country’s ore export ban remains in place.

Tin: Summer lull nearly over
Tin has performed relatively more poorly than its LME peers since the start of August, mainly because the negative summer effect on prices was stronger, while global refined production has continued to recover.

But we expect demand to pick up from September and refined market conditions to improve. This should be supportive of tin prices, especially if the macro environment remains supportive of commodities.

Zinc: 2020 surplus lowered, price forecast raised
Revisions to our refined zinc supply-demand balance this week have seen the forecast surplus for 2020 revised lower, to 266,000 tonnes from 298,000 tonnes previously, including an excess of just 60,000 tonnes in the second half of the year.

We have also raised our price forecast for the third and fourth quarters of 2020, reflecting the recent stronger-than-expected rally and renewed nervousness about further supply disruptions, after activity at San Cristóbal in Bolivia was suspended due to Covid-19 this week.

Click here to view the Base Metals Market Tracker in full.

If you are not a subscriber but would like see a free sample report, please click here.