Want to make money in industrial metals next year? Ask China how

Published on: December 13, 2017
Author: Editor

Base metals have been hot this year with zinc, copper and aluminum among the leaders, climbing between 15% and 23%. But what about 2018? Where would you invest to make money in industrial metals?

China will have the answer. Its supply side discipline can make-or-break industrial metal sentiment for the next year, and will be the main focus for the market. Debates among analysts are heating up on copper and aluminum, while steel, coal and zinc are also creating buzz among the experts. Here are some takes on what analysts are expecting for 2018.

Goldman Sachs

  • Bank expects outlook of strong growth in Emerging Markets and “soggy” dollar to favor metals markets. Goldman is most bullish on copper and most bearish on aluminum. Copper is “clearly” at the end of a supply boom, where aluminum has rising risk of a supply response, both inside and outside China.
  • Goldman estimates the three-, six- and twelve-month copper price at $6,750, $6,900 and $7,050 per ton, respectively. Sees iron ore at $60, $55 and $50 per ton for same time period and aluminum unchanged at $2,000 through next twelve months.

Morgan Stanley

  • Nickel and aluminium are top picks among base metals. China’s supply reform policies to benefit aluminium, while nickel “has plenty of room” to rise as its market tightens. Copper market is expected to be balanced in 2018 and likely to fall slightly versus current price.
  • On the bearish calls, the bank thinks the zinc price is set to come under pressure by year-end 2018 on expanding supply. However, Morgan Stanley is most bearish on the bulk commodities. Expects iron ore and met coal prices to potentially weaken due to rising supply and declining steel demand as China’s infrastructure push slows down. Also thinks the battery metals, lithium and cobalt, will see rising supply, setting up lithium to fall.
  • Hiked 2018 copper price estimate by 15 percent to $2.90 per pound and by 10 percent to $2.95 per pound for 2019. Raised average aluminum price forecast for 2018 to 2019 by 7 percent to $0.96 per pound and increased 2018-2019 average metallurgical coal, copper and zinc price forecasts by 2 percent, 13 percent and 10 percent, respectively.

Bloomberg Intelligence

  • Refined-zinc market likely to tighten further in 2018, flip to a surplus in 2019 and then return to a deficit thereafter. Zinc concentrate market should gradually loosen over the next few years.
  • Chinese supply-side reforms should keep coal, steel and aluminum prices higher for longer. Though China is backtracking on coal cuts, production increases won’t go far. Lower steel exports should sustain high global prices.
  • The global copper market will be relatively balanced in 2018, but will turn to deficit in 2019 as required growth for primary refined metal outpaces the rate projected for mine supply.
  • The recovery in global steelmakers’ shares since early 2016 may have more roomto run, with bullish drivers likely to remain in place into 2018.

Royal Bank of Canada

  • Valuations for base and diversified metal miners remains relatively attractive. The first quarter in 2018 could be volatile for the stocks due to Chinese winter, and copper could pull back to recent lows of about $2.90 per pound. But RBC recommends using such weakness to add to selected base metals and bulk commodities miners.
  • RBC says its price forecasts for copper, zinc, coking coal and iron ore are above what other analysts are estimating for 2018
  • Copper prices to average $3 per pound in 2018, but the bank thinks prices will rise through 2021 due to growing deficits and demand. Zinc prices will stay elevated for the next three to four years. Aluminum, on the other hand, is currently in its best fundamental position for years, and the market is still tightening. RBC also thinks prospect for nickel is “very interesting” on a 5-year basis due to rising electric vehicle demand, but the metal’s large inventories are a near-term headwind.

Source: Bloomberg

Coal Copper Industrial Metals Iron