Prices of nickel and zinc, top performers among industrial metals in recent months, are overcooked and likely to retreat by the end of the year even though shortages are becoming more severe, a Reuters poll showed. While global deficits in both metals are forecast to be deeper than in the previous poll three months ago, analysts are wary of current rallies fuelled by speculators, partly due to heavy inventories.
In the poll, the median forecast of 20 analysts for cash nickel in the fourth quarter was $9,817 a tonne, down 6 percent from Monday's closing price, but still up 12 percent from the end of last year. "Reported nickel inventories are high and will constrain prices. Unreported nickel stocks will likely do the same," said analyst Wen Tian at RBC Capital Markets in Toronto. Nickel, mainly used to make stainless steel, has been the top performer on the London Metal Exchange since June 1, with prices surging by about a quarter.
Analysts boosted forecasts for how much demand would outpace supply this year after authorities launched an environmental crackdown on the mining sector in top nickel ore exporter the Philippines. The global deficit of refined nickel was pegged at 41,000 tonnes this year, up 64 percent from 25,000 tonnes in the previous poll in April. The price of zinc, like nickel, is expected to pull back after a strong rally, while analysts also see the fundamental situation becoming tighter.
Analysts forecast that cash zinc would average $2,053 a tonne in the fourth quarter, down 9 percent from Monday's close. They also predicted that the global deficit for zinc - mostly used for galvanizing steel - for 2016 would come in at 221,000 tonnes this year, up 20 percent from 184,000 tonnes in the previous poll. Zinc has been the second-best LME performer since June 1 and the best performer since the start of the year, jumping 40 percent on concern that the closure of major mines and cutbacks at others would lead to a scramble for supplies.
A surplus in copper will inhibit cash LME prices in the second half, dipping to $4,750 in the third quarter and $4,788 in the final quarter, analysts forecast, down 3 percent and 2 percent respectively from Monday's close. "More supply is expected in the second half," said Amy Li at National Australia Bank. "At current prices, many mines are still profitable due to higher ore grades and lower energy costs. Miners are still expanding with the hope of grabbing market share."
The global surplus in the copper market was pegged by analysts at 172,000 tonnes this year, moderating to 148,000 tonnes in 2017. Aluminium prices are seen as lacklustre, ending the year at $1,600 a tonne, around current levels, a rise of only 6 percent this year. Aluminium, used in transport and packaging, is forecast to be burdened with a global surplus of 267,500 tonnes in 2016, ballooning to 438,500 tonnes next year.
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