Aluminum and copper swamped with surpluses, prices seen poised: Reuters poll

LONDON (Reuters) - The combined impact of stronger output and a sharper-than-expected slowdown in China has sent market surpluses in copper and aluminum ballooning this year, a quarterly Reuters poll showed.

Prices of the two most-traded industrial metals, however, may have limited downside, according to the poll results.

Other industrial metals also will be burdened with more supply amid a slowdown in top metals consumer China, except zinc, the only metal that poll participants expect to record a market deficit this year.

Nickel is seen as balanced in 2015, but moving into a deficit next year.

The scope of the change in the aluminum market balance was the most dramatic among six main base metals as estimated excess metal on the global market had surged nearly 10-fold since the last poll.

The poll, in which 11 market participants over the past three weeks estimated the aluminum balance, saw them ramp up their forecasts of a surplus to a median of 325,000 tonnes.

This compares to a surplus of 34,000 tonnes in the April poll and a deficit of 54,500 in the January poll.

The surplus is expected to expand to 420,000 tonnes in 2016.

“The continued outflow of aluminum from China is quickly pushing what was a relatively tight market into surplus,” said Daniel Hynes, senior commodity strategist at ANZ Bank.

Output from top producer China surged to another record in June, while exports of semi-finished products jumped 47 percent.

Strong Chinese exports helped send aluminum prices to six-year lows earlier this month, but analysts have only marginally marked down their forecasts.

In the poll, 23 market participants gave a median forecast that cash aluminum prices would average $1,780 a tonne in 2015, down 3.8 percent from the prior poll in April, and $1,848 next year.

The latest forecast is well above the current level of about $1,615 a tonne.


Analysts have also boosted forecasts for oversupply in the copper market after demand crumbled in top consumer China.

Earlier in the year, investors had worried that disruptions at mines would slash a surplus.

Participants in the poll have nearly doubled their forecast surplus, with the median number for 2015 rising to 194,000 tonnes from the April poll’s 105,000 tonnes. The surplus is seen climbing to 262,500 tonnes next year.

Analysts marked down their forecasts of average prices in 2015 only marginally, leaving room for a recovery.

“I think the market will remain in surplus in the second half, but it would quickly move toward a balance toward the end of the year or in early 2016,” said Daniela Corsini at Intesa Sanpaolo Bank in Milan.

“I expect a healthier market balance and improving market sentiment will drive a sustained recovery in copper prices before the end of the year.”

In the poll, the median forecast of 31 analysts for the average 2015 cash copper price was $5,952 a tonne, down 2.8 percent from the April poll but well above the current price of $5,350.

Prices are pegged to rise to $6,173 a tonne in 2016.

Zinc, which has been a favorite of investors due to expectations of shortages due to mine closures, was the only metal expected to be in deficit this year, at 147,000 tonnes, little changed from April’s forecast of a deficit of 145,300.

The zinc price is expected to average $2,175 a tonne this year and $2,400 in 2016, up from $2,000 currently.

Supply and demand in nickel are forecast as balanced this year, compared to a deficit of 17,000 tonnes in the previous poll, but a deficit of 62,000 tonnes is expected in 2016.

Additional reporting Vijaykumar Vedala in Bengaluru; Editing by Dale Hudson