Copper and aluminium prices are expected to lose steam this year after speculators pushed up both markets despite surpluses that will persist into 2018, a Reuters poll showed. Zinc, which has been a favourite of investors, is expected to retain most of its heady gains from last year while nickel may rebound from recent losses, according to analysts' forecasts.
Copper has been the top performer on the London Metal Exchange over the last several months, surging by a fifth since the start of November. Speculators piled in, optimistic about growth in top metals consumer China as well as the United States following Donald Trump's presidential election victory.
But the median forecast of 31 analysts for the average 2017 price of cash copper was $5,350 a tonne, down 8 percent from Thursday's close of $5,838. "We remain bearish for copper as we believe that current prices are reflecting high-flying growth expectations which are unlikely to be met," said Carsten Menke, research analyst at Julius Baer in Switzerland.
"In particular, we believe that any infrastructure programme in the United States should only have a limited impact on demand while China's ongoing transition from investment-led to consumption-led growth should continue to cause headwinds."
Copper was also vulnerable because the market was due to be well supplied with a global surplus of 80,000 tonnes this year and 80,500 tonnes in 2018, analysts forecast.
Excess production was also a danger for aluminium prices, according to the poll, with a global surplus estimated at 317,000 tonnes in 2017, declining only slightly next year to 292,500 tonnes.
"I think we have already seen signs of producers responding to higher prices in China's aluminium and steel sectors," said Caroline Bain, chief commodities economist at Capital Economics in London.
"Aluminium might underperform given that China is looking as though it will increasingly overproduce over the next few months."
LME cash aluminium, which has gained 8 percent this month, is expected to average $1,685 a tonne this year, down 7 percent from the current price of $1,819.
Zinc was the star performer last year, with LME prices soaring 60 percent after closures and suspensions of mines fuelled worries of shortages.
While many analysts are positive about zinc again this year, their price forecasts show they are wary about the scope for further gains.
The poll shows LME cash zinc is due to average $2,622 a tonne in 2017, 5 percent below the current level of $2,751.
The market is expected to show a global deficit of 392,000 tonnes this year, according to analysts' forecasts.
"Zinc should outperform the segment in 2017. A wide deficit is expected this year due to constrained supply and healthy consumption growth," said Daniela Corsini, commodities economist at Intesa SanPaolo in Milan.
However, Corsini said high levels of speculation presented a risk.
"Indeed, speculative positions rose significantly last year and in the event of a severe episode of flight from risky assets or a sudden deterioration in zinc fundamentals, prices could heavily correct."
LME nickel has slumped 15 percent since the start of December, partly on worries about the potential for additional exports from Indonesia.
Indonesia said earlier this month it may export up to 5.2 million tonnes of nickel ore a year after easing a three-year ban on exports, but said it would not flood the market. Analysts expect a recovery in the market, with an average LME cash price this year of $10,800 a tonne, 16 percent higher than the current level of $9,353.
"Nickel, strangely, is our best forecast despite high stock levels," said John Meyer, analyst at SP Angel in London. "Demand should rise as China focuses on improving the quality of its metal production and as demand for better quality steel products improves due to the nature of the cycle we are in." Nickel is mainly used as an alloy in stainless steel for its anti-corrosion properties.
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