LONDON: The London Metal Exchange (LME) index of base metals surged 38% higher last year as pandemic demand recovery met supply chain disruption.
Copper and tin soared to all-time record prices, while aluminium, nickel, zinc and lead each hit multi-year highs.
That, however, may be it for the super-charged rally, according to base metals analysts participating in Reuters’ January poll.
Median forecasts imply a retreat from current price levels over the course of 2022, the pull-back becoming more pronounced next year.
Market balances are expected to shift from supply deficit towards surplus in 2023 as production recovers and demand cools, particularly in China. Given the LME Index has risen an eye-watering 93% since the first days of pandemic lockdown at the start of 2020, such caution is understandable. It’s worth noting, though, that analysts were equally wary this time last, expecting prices to consolidate amid a growing supply surplus over the course of 2021.
A lot of stuff has happened in the intervening 12 months, particularly on the supply side, and even last year’s highest forecasts failed to match the bull reality.
That tells you just how wild the base metals markets have been - and not everyone thinks they are going to get any calmer.
Goldman Sachs is sticking to its super-cycle bull guns.
Average LME cash prices for all the base metals are expected to be higher this year relative to last, with the single exception of lead.
It’s no coincidence that lead is also expected to be the only market to register a supply-demand surplus in 2022.
Aluminium is forecast to be the relative out-performer with an average cash price of $2,780 per tonne, representing a 12% jump on last year.
However, remember that LME cash aluminium was trading below $2,000 per tonne this time last year, which serves to flatter the year-on-year comparison.
Perhaps more tellingly, the median forecast is significantly below today’s LME cash price, last trading at $3,070.
So too are the forecasts for all five other LME base metals. The inference is that analysts may be looking for prices to hold or even rise over the short term, but think they will soften over the year as a whole.
That retreat is expected to broaden out over the course of 2023, with median forecasts lower across the metallic board relative to this year.
Copper seems particularly out of favour.
This year’s median forecast of $9,370 per tonne is only 0.6% higher than last year’s cash average, and the price is expected to fall further to an average $8,700 next year.
Underlying that subdued outlook is an expectation that a supply deficit of 37,000 tonnes will turn into a surplus of 286,000 tonnes in 2023.
Indeed, only aluminium and tin are expected to remain in supply shortfall next year. Zinc is forecast to be balanced, and nickel and lead are both expected to record supply surpluses-for a second consecutive year, in the case of lead.
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