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JD Supra / Will zinc retain its base metals crown in 2018?

Posted by: Semere Asmelash

Date: Friday, 02 March 2018

Will zinc retain its base metals crown in 2018?


JD Supra

Trucks ferry excavated gold, copper and zinc ore from the main mining pit at the Bisha Mining Share Company (BMSC) in Eritrea, operated by Canadian company Nevsun Resources. Photography: Thomas Mukoy
Trucks ferry excavated gold, copper and zinc ore from the main mining pit at the Bisha Mining Share Company (BMSC) in Eritrea, operated by Canadian company Nevsun Resources. Photography: Thomas Mukoy
 Zinc, nickel and copper markets are on the front foot at the start of 2018. Our GFMS analysts examine the base metals outlook, including supply shortages, electric vehicle demand and an uncertain Chinese property market.
While zinc has been the stand-out performer among base metals, with prices at their highest level in a decade due to ongoing supply issues, nickel and copper markets have also benefited from more favorable conditions at the start of 2018.
This reflects the improving global economic picture as well as the weaker U.S. dollar, which has helped to underpin prices of base metals in recent weeks.
Whether these trends continue in 2018 is considered in detail by GFMS analysts in their latest report on the base metals sector, available onThomson Reuters Eikon.
Using our proprietary data, insights and access to a network of on-the-ground resources, the GFMS team provides the most authoritative analysis on market trends, price forecasts and supply/demand in the global metals markets.
Watch – Eikon for Metals Professionals: The Essentials
*see video here.

Zinc

Given zinc’s healthy fundamentals, and a backdrop of stronger global economic growth and a weaker U.S. dollar, the market once again expects that zinc will be the “star performer” in base metals.
Higher zinc prices have helped mining profit margins, and this should act as an incentive to the industry to speed up their pipeline of projects or to restart idled operations.
However, it’s “too little, too late” to fill the concentrate supply gap that we forecast in 2018.
Metals prices January - February 2018. Copper is orange, zinc is red and nickel is greenMetals prices January – February 2018. Copper is orange, zinc is red and nickel is green.
Based on our latest review of the timetable of western mining projects and harder-to-assess Chinese zinc mines, it will be some time yet before a recovery in concentrate supply comes to the aid of the refined market balance.
We currently estimate some 600,000 tonnes of contained zinc supply coming from ramp-ups, expansions and restarts.
Furthermore, the tightened refined zinc market is evidenced by the declining stocks-to-consumption ratio. We estimate that global refined production in 2017 has seen a second year of decline.
2018 Base Metals Outlook: Zinc
World zinc consumption accelerated last year amid strong momentum in major economies. Improved margins encouraged steelmakers to run at higher utilization rates, and there have been ramp-ups of additional galvanizing capacities in Europe.
This was particularly evident in China during Q3 last year as well as in Turkey, though from a smaller consumption base.
For 2018, we estimate global zinc demand growth will be flat on last year at 1.7 percent.

Nickel

The nickel market looks set to record another sizable deficit this year, but not sufficient to herald a substantial increase in prices during the period.
Nevertheless, we remain mindful of the long-term battery narrative and the growing chorus of market watchers with a more bullish viewpoint.
Rechargeable batteries used in electric vehicles have had companies scrambling to lock in supplies of key ingredients such as nickel, cobalt, and lithium.
According to forecasts, electric vehicles are expected to represent between 7 percent and 20 percent of the global auto market by 2025, up from 1 percent in 2017.
2018 Base Metals Outlook: Nickel
Meanwhile, we estimate global refined nickel output rose by almost 4 percent last year and that growth will only fall slightly short of that pace this year.
Amid expectations for a period of synchronized economic growth, we currently forecast that global nickel demand will remain reasonably robust again this year (circa 4 percent).
This, in turn, will result in another year of a relatively sizable deficit.
Nevertheless, this will not be sufficient to reduce inventories of nickel to disconcertingly low levels next year, or even into 2019.
Based on this fundamental picture, we forecast that nickel prices will rise by around 16 percent this year — a respectable, but not stellar, performance.

Download 2018 Global Base Metals Outlook, available on Thomson Reuters Eikon

Copper

Despite the major supply disruptions that plagued copper in the early months of 2017 and underpinned widespread talk of deficits, we estimate that the market was more or less in balance last year.
A port worker checks a shipment of copper that is to be exported to Asia, in Valparaiso port, northwest of Santiago, Chile. Photography: Rodrigo GarridoA port worker checks a shipment of copper that is to be exported to Asia, in Valparaiso port, northwest of Santiago, Chile. Photography: Rodrigo Garrido
 
A surplus is expected to re-emerge in 2018, albeit still a relatively modest one, before showing signs of contracting on a sustainable basis as the end of the decade approaches.
That resurgence resulted in further gains in the final quarter of last year, with LME three-months reaching a near four-year high of US$7,313/tonne in late December and rising by 7 percent and 30 percent on a sequential and year-on-year basis respectively during the period.
2018 Base Metals Outlook: Copper
On an annual basis, copper averaged $6,200/tonne in 2017 for a 27 percent gain on the previous year.
Looking to this year, the uncertainty over scrap imports amid stricter impurity thresholds will remain a supportive factor for the immediate period.

Risk of disappointment for bulls after mine wage deals sealed http://reut.rs/2sheinl 

As 2018 progresses, China’s property sector is expected to slow further and peg back overall copper demand this year.
However, any slack from China will be taken up elsewhere.
Even though U.S. demand disappointed last year, expectations are stronger for this year amid a largely solid growth story in regions like India, Brazil and Russia.
And while we predict a wider surplus this year and next, this will not be enough to dampen spirits, particularly as deficits loom from around the turn of the decade.
Against this backdrop, we now expect prices to rise by a further 8.1 percent this year to average $6,700/tonne, and reach $7,500/tonne by 2020.
Thomson Reuters Eikon Metals commodities
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