Concerns raised about bullish expectations
Base metals have enjoyed a strong start to the year, the London Metal Exchange index rising by 9.4% over the course of January on high hopes for China’s post-COVID reopening.
Supply will be a key differentiator next year, with copper, aluminum and tin outperforming nickel, lead and zinc.Copper is back in favor with investors, who have been building long positions in the metal as one component of the broader China recovery trade. While everyone agrees that China’s reopening is “unequivocally positive for copper,” to quote Capital Economics, many appear to share the research house’s caution around the likely strength of the demand rebound.
Mitigating against higher prices is an expected lift in mine production which will keep the global market in a 379,000-tonne supply surplus over 2023 and 2024.Indeed, recovering supply is likely to be just as significant to metals pricing as recovering Chinese demand this year. Nickel is expected to see an even bigger cumulative surplus of 216,000 tonnes over the same period, reflecting the massive build-out of production capacity in Indonesia.
Although the median forecast is for aluminum to fall to an average $2,488 per tonne this year, continued production-side constraints will underpin a recovery to $2,600 next year.Tin is a good reminder of the challenges of commodities forecasting, the LME tin price having registered both an all-time high of $51,000 per tonne and a two-year low of $17,350 over the course of 2022.
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