January 25, 2018 / 1:11 PM / 2 months ago

Copper, aluminum prices to drift despite shortages

LONDON (Reuters) - Supply problems including strikes at copper mines and pollution shutdowns at aluminum smelters will spur deeper shortages of the metals this year, but weaker Chinese demand may weigh on overcooked prices, a Reuters poll showed.

Copper and five other industrial metals on the London Metal Exchange (LME) have rallied about 10 percent since early December, but struggled since to maintain the higher levels.

Prices of base metals were boosted earlier last year by enthusiasm for the electric vehicle revolution, but many analysts said the market got ahead of itself as the impact would not be felt for several years.

“Demand wise, a weaker Chinese property market tells us that copper demand growth should slow (this year),” said Giovanni Staunovo at UBS in Zurich.

“However, the supply side should not be without disruption risks amid increased profitability, as more than 20 percent of supply capacity is due for wage negotiation this year.”

A series of labor contracts at copper mines are due to expire this year, including at the world’s largest copper operation, Escondida in Chile.

The potential disruptions led analysts polled by Reuters to reverse their consensus estimates of the copper supply/demand balance this year, shifting to a deficit of 45,500 tonnes from a surplus of 93,000 tonnes in the previous poll in November.

But the market may have already priced in the shortages.

The median forecast of 30 analysts for the average 2018 LME cash copper price was $6,684 a tonne, down 6 percent from Wednesday’s close.


A similar scenario holds in aluminum, where prices got a shot in the arm last year, surging 33 percent, largely due to a clamp down by China on pollution that involved the closure and temporary shutdown of smelters.

“Overall, we expect the (Chinese) government to announce further environmentally-motivated shutdowns in 2018 and 2019,” said Cailin Birch at the Economic Intelligence Unit in London.

“Although the global market will remain tight, global sentiment will also take a hit as capacity restarts gather momentum, preventing faster price growth.”

Analysts have deepened their consensus forecast of a global aluminum deficit in 2018 to 361,500 tonnes from 100,000 tonnes in the previous poll.

But like copper, news of shortfalls have likely been absorbed by the market since the cash aluminum price is expected to average $2,097 a tonne in 2018, down 7 percent from Wednesday’s close.


Nickel has been the recent investor darling, largely due to optimism about rising demand for electric vehicle batteries, sending prices surging 36 percent over the past six months.

But analysts have only made modest changes in their forecasts for this year’s market balance, seeing a deficit of 50,000 tonnes, about 16 percent deeper than the previous poll.

“More supply from Indonesia and China is due to keep the nickel market well supplied,” said Robin Bhar, head of metals research at Societe Generale.

Cash LME nickel is expected to average $11,704 a tonne this year, 14 percent weaker than the latest price.

The zinc market is also expected to see shortages, with a deficit of 310,000 tonnes in 2018, but analysts expect the LME cash price to average $3,200 a tonne, down 8 percent from current levels.

“For 2018 I expect that the zinc market will definitely remain tight. Demand is still good, especially from the construction sector,” said analyst Casper Burgering at ABN Amro in Amsterdam.

Additional reporting by Swati Verma in Bengaluru, editing by David Evans

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