The average prices of zinc, tin and nickel, the three top-performing base metals this year after speculators piled into the market, are expected to hover around current levels in 2017, a Reuters poll showed. All three metals are due to have persistent market deficits next year, but much of the impact of the shortages has been priced into the market, according analysts' forecasts.
Zinc is the top-performing metal on the London Metal Exchange this year with gains of over 50 percent, touching the highest levels in more than five years on worries about shortages due to mine closures and suspensions. But the poll showed further gains next year would be limited as the median forecast of 28 analysts for the average 2017 price of cash zinc was $2,400 a tonne, down a touch from Friday's close of $2,434.
Zinc remained the top pick of many analysts for next year due to increasing supply/demand deficits, which they saw rising to 410,500 tonnes in 2017 from 400,000 tonnes this year. Many analysts, however, were cautious, including Nicholas Snowdon of Standard Chartered in London.
"There are still material risks to this story, largely via the potential for Glencore to restart some mine capacity and uncertainty over the degree of China's mine supply response to the price environment," he said. Glencore slashed 500,000 tonnes of annual zinc production last year, but its third-quarter output rose 13 percent from the previous quarter, the first quarterly increase since it announced the cuts.
"The risk of restarts does in our view have some limited impact to potential upside price trajectory," Citi's David Wilson said. The second and third best-performing LME metals this year, tin and nickel, with gains of 46 percent and 19 percent respectively, were also expected to hold close to current price levels.
Analysts forecast LME cash tin to average $19,515 a tonne next year and nickel to average $10,972, down 9 percent and up 5 percent respectively from Friday's closes. "Our overall view on the nickel market is unchanged - the market is in structural oversupply so long as stainless mills are willing to accept NPI/ferronickel as a low-grade feed," said Jessica Fung at BMO Capital Markets in Toronto.
Nickel pig iron (NPI) is a lower-nickel-content substitute for refined nickel. Aluminium showed a dramatic rethink by analysts of market supply and demand fundamentals as they moved to forecasting a heavy market deficit this year, after expecting a surplus in the July survey.
Slower-than-expected restarts of Chinese smelters following suspensions last year combined with buoyant demand led analysts to shift to expecting a deficit of 372,000 tonnes this year compared to a surplus of 267,500 tonnes in the July poll. High prices, however, are due eventually to spur more production and lead to a 232,000-tonne surplus in 2017, according to the analysts' forecasts.
"Aluminium should underperform once supply growth in China starts to accelerate again. Support from rising production costs, ie coal prices, should fade again, leaving significant downside for prices over the course of 2017," said Carsten Menke at Julius Baer in Switzerland. The cash aluminium price is due to average $1,650 a tonne next year, down 4 percent from Friday's close. Copper supply is expected to remain ample, with its market surplus rising to 192,500 tonnes in 2017 from 185,000 this year.
"We continue to forecast a surplus market for both 2016 and 2017," said Grant Sporre of Deutsche Bank. "This is sufficient to ... continue to weigh on prices." The cash copper price is due to average $4,868 a tonne in 2017, down 2 percent from last week's close, the poll showed.
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