Aluminium market deficits are set to deepen, but the market is likely to rebalance once the dust settles after US sanctions on Russian producer Rusal, leaving prices little changed, a Reuters poll showed. Prices on the London Metal Exchange soared by a third, lifting the metal to its highest in nearly seven years, after the United States imposed sanctions this month against billionaire Oleg Deripaska and his company Rusal, the world's No 2 aluminium producer.
However, much of those gains were lost after the deadline to comply with the sanctions was extended by several months. "Sanctions against Rusal are the main market theme. However, according to our estimates, restarts of US capacity and excess capacity in China should easily compensate for lower Russian exports," said Daniela Corsini, commodity market economist at Intesa Sanpaolo in Milan.
The median forecast of 32 analysts for the average 2018 LME cash aluminium price was $2,150 a tonne, down 3 percent from Friday's close but slightly higher than the $2,097 forecast in the previous poll in January. Analysts raised their forecast for this year's aluminium deficit to 550,000 tonnes, up 52 percent from the January poll,
and nearly quadrupled their estimate for a 2019 shortfall to 588,500 tonnes. "Amid all these uncertainties, the market will need time to settle and move back into balance," said Julius Baer analyst Carsten Menke in Zurich. In copper, analysts marked up price forecasts and their market deficit estimates but said deep shortages are unlikely.
"Demand conditions remain healthy in the copper market but so do supply (conditions), with trends in both concentrate production and scrap supply limiting a material tightening in the market," said Deutsche Bank analyst Nicholas Snowdon. The copper market deficit was forecast at 60,000 tonnes this year, up from January's estimate of 45,500 tonnes.
Lurking in the background, however, were threats of disruption from strikes, especially at the world's biggest mine, Escondida, which said on Thursday that early contract talks ended without an agreement. The risk of labour problems may have been partly behind the 4 percent rise in analysts' forecasts of the average LME cash copper price in 2018 to $6,975 a tonne, up 4 percent from the previous poll.
Still supporting the nickel market is the expectation of a surge in demand for electric vehicle batteries, though most investors and analysts acknowledge that it will take several years for momentum to build in this area. "We lift our nickel price for 2018-19 ... due to better stainless steel demand recently and the potential that the market is willing to bring forward electric vehicle demand into the price," UBS strategist Daniel Morgan said in a note.
There was downside price risk in the short term, however, owing to rising supply from Indonesia, he added. Analysts in the poll lifted their forecast for this year's average LME cash nickel price to $13,160 a tonne, up 12 percent from the previous poll but still 5 percent below Friday's close.
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