Copper emerges as the apparent bear stand-out in the latest Reuters poll of base metals analysts. What was once the darling of the investment community is the only metal expected to average a lower price both this year and next year relative to 2014. Even lead, which has been left to wander in the wilderness for many months, fares better over the same period. A 2.5-percent decline in 2015 is expected to be followed by a 7.1-percent rise in 2016.
Similarly with tin, where expectations of imminent deficit and higher prices have been repeatedly frustrated. The median forecast is for a price drop this year but for a recovery next year. Nickel, zinc and aluminium are the headline bull picks thanks to a collective view that all, to varying degrees and at varying speeds, are transitioning from chronic oversupply to undersupply.
But a closer look at the details of the poll reveals that even copper's prospects are not as gloomy as might be expected from the current bear cocktail of China slowdown, surging supply and dollar strength. That's in large part down to the fact that the copper price has already imploded in the first month of this year. Benchmark three-month copper on the London Metal Exchange (LME) is right now trading around the $5,450-per tonne level.
That's already significantly below the median 2015 forecast of $6,372 per tonne. Indeed, it's below the most bearish forecast of $5,542 from Goldman Sachs. (All the poll forecasts, by the way, are for LME cash prices but the spread differential is marginal relative to outright pricing.) Even as the market collectively braces for another potential bear attack on the copper price, analysts are evidently expecting some sort of rebound to justify average prices above the current price action.
And higher prices still next year. The median copper forecast is for $6,813 with Goldman again the most aggressive bear at $5,825. The reason for the tempering of bear views is a steady trimming of the expected surplus in the copper market. The median expectation is for excess supply of 221,000 tonnes this year and 200,000 tonnes next year. The 2015 figure is down from 350,000 tonnes in the October poll, reflecting a number of production downgrades from some of the world's biggest miners.
Quite evidently copper's precipitous slide over the course of January is likely to add a layer of price-related cutbacks over the "normal" mine-planning announcements already made. And 200,000 or so tonnes in the context of a 23-million-tonne market is within the statistical margin of error. It's also a number that could be wiped out of real-world market dynamics by any purchases from China's State Reserves Bureau.
Both lead and tin, the other bear picks this year, are suffering from deflated great expectations. Remember the e-bike excitement in the lead market a couple of years ago? China's collective embrace of this new form of transport was seen boosting battery, and therefore lead, demand.
Well, it did. But China, it turned out, could produce enough lead and batteries to meet that demand. The country that was supposed to drive the lead price higher has been a net exporter, not an importer, of lead for the last couple of years. The collective disappointment still hangs heavy on the lead price. There's an interesting contrast between the median forecast for a fall in average prices this year and the median expectation the lead market will record a supply deficit of 20,000 tonnes.
Only next year do expectations of price and market deficit, seen at a wider 70,000 tonnes, realign. Tin has been a perennial disappointment for would-be bulls. Structural supply deficit has been there on paper but curiously not there in reality. As with lead, tin's expected 3.4-percent price decline this year reflects the hangover of bull spirits past.
But many analysts are hanging on in there for an eventual price recovery in 2016, Standard Bank leading from the front with the highest forecast for an average price of $28,000. The two metals analysts really like for their bull narratives are nickel and zinc.
And if you're experiencing a sense of deja vu at this point, it's with some justification because both were favoured picks last year as well. Both enjoy a strong story-line of supply shortfall resulting, in the case of nickel, from the removal of Indonesian mine supply after the government's ban on exports and, in the case of zinc, the closure of some of the world's biggest mines. It's just a shame that neither lived up to its billing last year.
The scale of alternative nickel ore supply from the Philippines surprised on the upside. The scale of closures in China's nickel pig iron sector (NPI), which depends on nickel ore, surprised on the downside. Visible surplus in the form of LME stocks, meanwhile, has simply gone on rising. The bull story, though, has simply been rolled over to another year. Everyone's betting that it's still a matter of time before ore stocks in China get run down and NPI producers bow to the inevitable.
Some of the previous exuberance may have gone, but the median expectation is that nickel prices will rise 3.8 percent this year and by a more spectacular 24.2 percent in 2016 as the market tips into ever more significant deficit. Zinc is following a similar pattern of great expectations deferred. The giant Century mine, totemic of the bull narrative, may have surprised everyone by eking just a bit more out of its aging lodes but it will definitely close this year.
Analysts have accordingly reaffirmed their confidence in zinc's upside potential. Indeed, with a median forecast for a 6.2-percent rise in price it is the bull pick of the core LME metals for 2015. That's because only one analyst out of 14 offering a market balance view for this year, BMO Capital Markets, expects anything but a deficit market. And then there is aluminium.
Dysfunctional aluminium poses something of a problem for analysts because the price has split so drastically between LME basis price and physical premium. At over $500 per tonne in the North American market the premium accounts for almost a quarter of the "all-in" price. As such, the median forecast for a 3.7-percent rise in the LME cash price this year may reflect no more than the consensus view that the premium will also peak at some stage in 2015.
To what extent the "all-in" price is expected to change much at all is therefore a moot point. The consensus is that aluminium will record a widening deficit over this year and next. That should be supportive of price. But in this through-the-looking-glass market, it's more a question of which price?
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