- Currently there is sufficient supply in most industrial metals markets to meet demand
- Prospects for global economy remain positive, economic data and metal demand should improve
- Short-term view: stable base metal prices – Long-term view: strengthening in base metal prices
Industrial metals markets are very sensitive to movements in the Chinese economy, the tapering plans in the US and fundamental changes. Due to the default of Chaori Solar (in March this year) in China, investor sentiment tumbled and so did most metal prices. Metal markets with already poor fundamentals (such as aluminium) registered losses, but other metals (such as copper and zinc) also suffered severely. In fact, these two metals saw their prices decline the most. Both metals have been used as collateral in China’s shadow banking system. Nickel, on the other hand, rose, the price-supportive element being the prospect of deficits due to the Indonesian raw materials export ban. The downbeat sentiment had also a strong downward effect on iron ore prices, which dropped more than 8% in two weeks’ time. But sentiment in the iron ore market was already weak, due to high stocks in Chinese ports and reduced demand from traders and steel mills. The iron ore market is in desperate need of a revival in steel demand. However, slow business activity and weak sentiment holds the global steel markets back. In the US, bad weather slowed down demand and output. In Europe and China, buyers are wary to store too much material in uncertain times.
What price directions do we expect in 2014?
Long-term demand perspectives for base metals are still sound and we expect prices to increase again during 2014. Due to improving global economic conditions and the sound outlook for the end-using sectors, we foresee a revival in base metal prices from Q2 onward. China could cloud this perspective, however, should demand for base metals unexpectedly fade this year. In the ferrous sector, much depends on the level of steel demand and the pick-up in construction activity. But (structural) overcapacity will keep prices soft. The outlook for steel raw-material prices is mixed. Iron ore prices could increase somewhat in the second half of this year, but coking coal prices could soften even more because of the persistent oversupply.