Sunday Read from Forbes: Virga said she sees zinc being one of the better-performing base metals next year.
Base Metals Seen Diverging Next Year; Lead, Zinc, Tin May Fare Best
(Kitco News) – Base metals prices diverged some this year and are likely to keep doing so in the months ahead largely in response to their supply outlooks, analysts said.
Lead, zinc and tin are most frequently cited as the metals likely to outperform, with copper seen flat or slipping as producers hike output. Aluminum is seen languishing due large inventories and annual supply/demand surpluses.
“The fundamentals of the individual metals will matter more than they did through the 2009-2012 phase where there was risk on, risk off, risk on, risk off,” said Stephen Briggs, senior market strategist with BNP Paribas.
“That divergence is entirely a supply-side story, not a demand-side story,” he said. “If demand for one is growing, demand for the other is growing. They are at different rates, but go in the same direction. But the supply sides of these metals are largely unrelated to one another….What is happening in the nickel-producing industry tells you little about what is happening in the copper-producing industry, and vice-versa.”
Catherine Virga, director of research with CPM Group, said metals often move together on a daily basis when they are influenced by moves in markets such as equities and the U.S. dollar. “But if you break away and look at it from a longer-term basis, I definitely think we’re going to see some divergence.”
There is less of a tendency for index funds to pile into all of the metals at once, she said. “Investors have already taken base metals up on their own individual market fundamentals and are not necessarily looking at the complex as a whole,” she said.
Overall, Virga said she is “positive” on most of the base metals over the next half year, although she looks for bellwether copper to be flat. Demand prospects are improving for metals, and CPM Group sees growth in global gross domestic product rising to 3.2% in 2014 from 2.8%. Also, prices of several of the base metals are near the cost of production, she added.
INTL FCStone and William Adams, head of research with Fastmarkets.com, suspect base metals will be largely range-bound in 2014. INTL FCStone, in an outlook prepared ahead of London Metal Exchange Week next week, cited expectations that key consumer China’s economy will show more signs of slowing, as well as producers being slow to rein in excess capacity in cases of an oversupply.
Lead, Zinc and Tin Could Outperform
BNP Paribas and INTL FCStone say tin, lead and zinc could be the best-performing base metals next year.
Tin has outperformed in 2013. Early this week, it was the only metal higher for the year, although it has since lost that status.
“There has been very little growth in global production in recent years, and I can’t see that changing this year or next,” Briggs said. “Perhaps by late next year, you’ll see the first of a few new mines coming on stream in Australia and perhaps other countries. But for the next 12 months, there is little growth in supply from new mines, and existing producers are struggling to maintain production levels.
“So, the tin market has been in deficit for the last three or four years and I think it will remain in that direction through next year as well.”
INTL FCStone also looks for tin deficits this year and next, while CPM looks for small surpluses.
Virga said one of the factors curbing supply growth is Indonesian export policies. However, she said, if prices remain strong, more supply could return to the market, meaning tin could trend flat although at elevated levels.
Virga said she sees zinc being one of the better-performing base metals next year.
BNP Paribas said zinc is already in deficit, while CPM Group and INTL FCStone list surpluses for this year but expect smaller ones next year. CPM Group anticipates a deficit by 2015.
While some new zinc mines are coming on line, two others have hit the end of their lives and already closed this year, with a couple more expected to close in the next two years, Briggs said.
“Mines reach the end of their lives as a part of life,” he said. “There is nothing unusual about it. But there is a bunching in a relatively short space of time, and the new mines will barely offset that. So you’re going to start to see a tightening up of the zinc market over the next 12 to 24 months.”
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