(The opinions expressed here are those of the author, a
columnist for Reuters.)
By Andy Home
LONDON, July 23 The latest quarterly Reuters
poll of base metals analysts was out earlier this week, and it
lays bare the extent to which the entire market was blindsided
by Indonesia's January ban on the export of unprocessed
The ban has severely affected operations at the country's
two copper mines, but the impact on the nickel
market is structural, with the flow of nickel ore to China's
huge nickel pig iron (NPI) sector choked off.
The reality of the ban has caused a dramatic change in the
collective view about nickel since the January poll, which was
conducted just at the time the ban was coming into effect.
Collectively caught off guard by Indonesian policy-making,
analysts can take some comfort from the fact that zinc, viewed
as the base metal with the best prospects back in January, has
lived up to expectations.
Graphic on median forecasts for 2014 and 2015:
Graphic on change in forecasts since January 2014:
Nickel is now expected to be the stand-out bull
performer both this year and next, with the median forecast for
average cash prices to rise by 19 percent and 34 percent in 2014
and 2015 relative to 2013.
But it wasn't always so.
Indeed, back in January the median expectation was for
nickel prices to fall by 1 percent this year, weighed down by
oversupply and steadily rising inventory on the London Metal
Such has been the turnaround in sentiment that only ANZ is
now forecasting an average price below $17,000 per tonne, which
was the highest forecast back in January.
Nobody, it seems, really expected the Indonesians to make
good on their legislative promise to halt all exports of
unprocessed minerals as a way of forcing its natural resources
sector down the value-added path of processing.
But six months on and the ban remains total, and analysts
have been rewriting their narratives.
The median market balance forecast for this year has shrunk
from a 60,000 tonne surplus to a 42,000 tonne surplus, while
only two out of 12 analysts offering a view expect anything
other than a deficit market next year. The median expectation is
for a 99,000 tonne deficit. Back in January it was for a 19,500
Stocks of nickel are still high and creeping higher, but now
they are now viewed not as oppressive weight but as brake on a
move to a supply shortfall, as China's NPI production contracts
due to a shortage of feed.
Zinc, which had been expected to be the star performer back
in January, has largely met expectations so far this year, even
if it has been eclipsed by nickel.
The LME cash price averaged $2,051 per tonne in the
first half of this year, just one dollar off the January median
expectation of $2,050.
The market's continued strong performance has caused
analysts collectively to tweak higher their expectations.
The median forecast is now for prices to average $2,116 per
tonne this year and $2,250 next year, the latter representing a
$50 gain on the January median.
As with nickel, this is a supply story, namely the closure
of some of the world's largest mines as they reach the end of
their natural lives.
The expected timeline for a shift to market deficit has
accelerated since January, the median forecast for 2014
switching sharply from a 96,000 tonne surplus to 80,000 tonne
deficit. That for next year has similarly changed from a 17,500
tonne surplus to a 172,500 tonne deficit.
In all probability this shift in collective stance reflects
the steady drawdown in LME stocks and the continued flow of zinc
to China, even though both bullish signals come with plenty of
Sister metal lead lacks any such signal, even though
it will be impacted by the same mine closures expected to
tighten the zinc market. LME stocks are largely static, and
China remains a net exporter of refined lead.
Which maybe explains why analysts have been trimming their
price forecasts. The heavy metal has fallen from second to
fourth in terms of bullish expectations since January.
Since the early-2014 poll, median forecasts have been
adjusted downwards by 3 percent for this year to $2,159 per
tonne and by 4 percent for next to $2,300 per tonne.
STILL OUT OF FAVOUR
Two forecasts that haven't changed much over the last six
months are those for copper and aluminium.
Copper remains out of favour with analysts, who
evidently are struggling to see much price upside at a time of
resurgent mine supply. It is still the only metal for which the
median expectation is for lower prices both this year and next
relative to 2013.
LME stocks may be hovering near historical lows, but the
consensus view appears to be that this reflects no more than the
temporary flip side of high inventory in China.
Only two of 14 analysts submitting a view on market balance,
Bank of America and Morgan Stanley, expect anything other than
surplus this year. Only two out of 13, Credit Suisse and Morgan
Stanley again, expect anything different next year either.
Aluminium remains equally out of favour, with
analysts seemingly taking a sceptical view of the recent LME
It is the only other metal expected to fall in price this
year relative to last, to the tune of 1 percent, even though the
median assessment of market surplus has shrunk from 568,400
tonnes to 235,500 tonnes.
Next year is different with seven out of 13 analysts
forecasting a market deficit.
That hasn't translated, though, into expectations of higher
prices. The median forecast for next year also has actually
fallen by 1 percent to $1,963 per tonne.
The collective betting seems to be that historical inventory
is still likely to act as a powerful brake on price and that
even if aluminium does surprise on the upside, there is plenty
of idled production capacity that can swing back into action.
But then again, the collective betting can sometimes be
wrong, as starkly revealed by events in the nickel market at the
start of this year.
(editing by Jane Baird)