Copper to retreat from peaks as China demand eases

LONDON/BENGALURU: Copper prices are expected to retreat in the coming months as demand in top consumer China declines and supplies increase, a Reuters poll showed on Wednesday.

Benchmark copper surged 26% last year as China's spending on metal-intensive infrastructure helped its economy to recover from the impact of COVID-19.

Copper hit a near eight-year high in January, but China is likely to gradually withdraw stimulus and trim debt levels - triggering a pullback, analysts say.

"As China's economy is already back to pre-crisis levels, its transition from investment-driven to consumption-driven growth should resume, implying that last year's metal demand dynamics should not be sustained," Julius Baer analyst Carsten Menke said.

LME cash copper is expected to average $7,600 a tonne this year, a median forecast of 29 analysts showed, down 5% from Tuesday's closing price.

Analysts raised full-year 2021 forecasts for the metal by 12% from the previous poll, conducted three months ago.

Prices were supported last year by worries about potential mine disruptions and strikes, but the supply outlook has improved.

The consensus market balance forecast flipped to a surplus of 31,000 tonnes this year from a deficit of 205,000 tonnes previously.

ROBUST ALUMINIUM

Aluminium prices held up in 2020, gaining 9% despite weaker demand as surpluses were mostly kept off the market via financing deals.

The benchmark price of the metal used in transport and packaging broke above $2,000 a tonne to a two-year high in December.

"With strong demand in China, and fast recovering demand in the rest of the world... it was not a big surprise the LME aluminium price reached $2,000," independent consultant Goran Djukanovic said.

Analysts increased forecasts for excess supply this year by 29% to 1.1 million tonnes, but much is still held in financing deals.

Cash LME aluminium prices are expected to average $1,971 a tonne in 2021, down 3% from the current price.

NICKEL SURPLUS

Major nickel producer Indonesia is expected to expand output this year and while demand should rise, the market will be in surplus, said Jason Sappor, analyst at S&P Global Market Intelligence.

The market balance estimate for zinc, mainly used to make stainless steel, has switched to a surplus of 62,000 tonnes in 2021 from a forecast in October of a 4,000 tonne deficit.

LME cash nickel is seen averaging $16,535 a tonne this year, down 8% from Tuesday's close.