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Barclays: Buy Base Metals On Price Dips
By Kitco News

Monday January 13, 2014 10:30 AM

(Kitco News) - Prices of industrial metals could start to strengthen this year, as demand starts to pick up and supply growth begins to subside, said Barclays in a research note Monday.

“For the first time in several years, the balance of risks is shifting to the upside, in our view. Subsequently, we favor buying the dips, especially given the potential for significant price upside for most base metals in 2015,” the firm said.

Structural surpluses for most base metals will likely end in 2014, with aluminum and lead seen moving into a supply deficit, and nickel and zinc surpluses shrinking dramatically, Barclays said. Copper will still see supply outpacing demand, but the firm said the surplus is likely to be “very modest.”

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A slowdown in supply is occurring as demand growth increases, Barclays said, as global manufacturing starts to pick up. With new orders growing, the firm’s economists believe it is a “strong signal” for accelerated expansion in manufacturing.

The firm said its price outlook suggest that base metals values will trade in a range, but it also means that there are opportunities to take advantage of buying metals when prices fall to the low end of those ranges.

“We favor being long nickel in early 2014 and view it as undervalued at current levels given the likely disruption to supply from the Indonesian ore export ban. We also favor buying copper on dips to the high $6,000s, especially given significant price upside potential in 2015. We also see potential for significant upside in lead and zinc prices on a 12-18 month horizon with the lead stocks-to-consumption ratio falling to very low levels and the zinc market moving into the first deficit in almost a decade in 2015,” they said.

Barclays’ forecasts for average 2014 base metals, per ton, are: aluminum, $1,850; copper, $7,125; lead, $2,263; nickel, $15,000; tin, $26,000; and zinc, $2,138. For 2015 their forecasts are: aluminum, $2,150; copper, $6,950; lead, $2,700; nickel, $18,200; tin, $18,000; and zinc, $2,975.

By Allen Sykora of Kitco News; [email protected]