In May, China’s services activity picked up, showing a rise in orders leading to the Caixin Global services purchasing managers index rising to 57.1 in May – up from 56.4 in April. London’s opening on Monday saw an element of short covering from sellers and fresh buying appears to have emerged. US-China tensions, amid reports of unsafe interactions over the Taiwan Strait, may impact aluminium price forecasts and keep the appetite for risk-on assets in check.

US equity impact on aluminium forecast

Equity markets in the United States closed in positive territory during the week to Friday, June 2, bolstered by Senate approval to suspend the US federal debt ceiling, thereby avoiding a first-ever default. In addition, employment data showed the country’s economy added 339,000 non-farm jobs last month, exceeding the 182,000-jobs increase forecast. Given the unpredictable macro and micro outlook in the United States aluminium market, we will maintain our bearish view on the US Midwest premium in June. Although we think there ought to be some positive macro flow arising from the US debt ceiling deal, persistently weak consumer demand, the impending summer slowdown in business and an intermittent backwardation in London Metal Exchange three-month futures prices are likely to act as drag factors and keep Midwest premiums trading lower for now. Learn more.

On-warrant stocks for aluminium doubled in 2023

Aluminium stocks have seen a significant jump recently, with multiple large inflows of material into warehouses in Gwangyang, South Korea and Port Klang, Malaysia. On-warrant stocks for aluminium have almost doubled so far in 2023, rising from 201,350 tonnes on January 3 to 386,075 tonnes on June 1. But aluminium stocks also remain significantly lower than historical norms, with total stock levels at just over half a million tonnes, with more than 33% of units in LME warehouses cancelled and waiting for delivery out. Total stock levels have not been above one million tonnes since November 2021 and exceeded two million tonnes in 2017.

As the market grapples with the fine balance between tight supply and weak demand, aluminium premiums have mostly remained supported by concerns over the availability of supply. Learn more.

Buyer demand for aluminium dips

Demand from some end-user sectors such as construction remains tepid amid the ongoing high-inflation environment and poor economic conditions in Europe.

An expected increase in demand for aluminium billet has failed to materialize because of weakness in end-user sectors, with some sellers responding by revising their offer prices downward for spot tonnages and third-quarter negotiations. Billet premiums stabilized earlier this year during second-quarter price negotiations, following a sustained downward trend in 2022 which saw billet premiums tumble from record highs. Fastmarkets assessed the aluminium 6063 extrusion billet premium, ddp Italy (Brescia region), at $540-590 per tonne on June 2, down from $540-600 per tonne a week ago, marking the first decline since March, compared with $650-700 per tonne at the start of the year.

The European Automotive Manufacturers Association (ACEA) reported a significant 28.8% increase in EU passenger car registrations in March, to 1,087,939 units. This was the first time since June 2021 that the figure has gone above the 1 million mark. Despite improvements in the automotive sector, with a recent uptick in production volumes, this was not enough to make up for the sluggish construction sector. The automotive sector was also having to make up for the weaker performance of the packaging sector. Learn more.

Aluminum price forecast June 2023

We maintain our bearish stance in the coming months as long as the light metal trades remain below January 2023 high. In fact, we prefer to stick with the prevailing downward trend that has started during the March 2022 high selloff and it will take a positive break above the January 2023 high to change our overall bias on the light metal.

Lastly, with Germany now entering into a recession following a period of high inflation, it is unlikely that consumers would be keen to take on additional tonnages in the coming months. But consumer stocks remained low for many, and if demand for billet were to return strongly, premiums could become volatile moving forward. Learn more.

To understand the complex market conditions influencing price volatility, download our monthly base metals price forecast, including the latest aluminium price forecasts.

The post How will aluminium prices trend in June 2023? appeared first on Fastmarkets.

Aluminium: More supply disruptions

The bullish narrative around aluminium centers on heightened supply disruption risks in the face of the Russia-Ukraine war, sanctions on Russia and high energy prices in Europe. In the past few weeks, news flow has emboldened the aluminium bulls, first with Australia’s ban on alumina exports to Russia and then, most recently, with German smelter Trimet joining the list of European peers forced to reduce output.

The global aluminium market was already heading for an enormous supply deficit this year, and developments like these only widen the supply-demand imbalance. The outlook for prices is still bullish, especially as long as sanctions on Russia remain in place and continue to disrupt flows of aluminium, its raw materials and energy.

Copper: Price recovery likely to continue

Copper prices have recovered well from their local low on March 16. This corroborates our view that the sell-off earlier in the month was induced by liquidity issues rather than a negative change in the fundamentals. In fact, we continue to view the refined copper market as meaningfully tight and expect traders to resume their long position building.

Meanwhile, any price decline below $10,000 per tonne should attract dip buyers, as was the case earlier this month. In the current environment, volatility in the copper market is here to stay, but we remain convinced that copper prices should trade well above their current levels over a 12-month horizon.

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Lead: Price may consolidate next

As expected, lead prices put in a stronger performance last week, ending back above $2,300 per tonne. Winter is typically a strong period for replacement battery demand. But given that winter is turning to spring in the northern hemisphere, and OEM battery demand will be affected by disruptions faced by automakers, lead prices could be seen as relatively elevated from this seasonal fundamental perspective.

We would not be surprised to see lead’s price performance soften in the weeks ahead. This is in line with the sideways pattern of Q2 2021 and our base case cash price forecast for Q2 2022, which remains unchanged this week.

Nickel: Trying to find its level around $30,000/tonne

Nickel prices remain volatile, with the focus of trading around the $30,000-per-tonne level. We reiterate that our price forecasts beyond the short-term, technically-driven correction, remain unchanged and continue to be grounded in nickel’s fundamentals, which still look strong.

We still forecast a global supply deficit of 93,000 tonnes this year, which means there is fresh upside potential for prices once the dust has settled over the short squeeze shock.

Tin: Consolidation continues

Tin prices have continued to trade sideways since their steep sell-off on March 9. This looks normal after the outsized price gains earlier in the year.

Fundamentally, the global refined tin market remains tight, which should keep prices elevated. Although metal availability should improve due to the resumption of Indonesian tin exports, most of the material will be sucked into China, keeping the global market tight. Against this, we expect tin prices to retest their all-time high in the coming months.

Zinc: Demand outlook revised, but deficit still stands

We have reduced our zinc demand outlook for Europe this week due to the automobile and galvanizing steel industries’ supply chain links with Russia and Ukraine. As a result, the global refined zinc market deficit for 2022 has fallen by around 50,000 tonnes. But at 193,000 tonnes, the projected supply shortfall this year is still meaningful and continues to support a bullish outlook for zinc prices.

The post Base metals: Behind all the volatility, the fundamentals are still robust appeared first on Fastmarkets.

In 2022, the energy transition is even higher up the agenda for governments, investors and corporates alike. Copper, aluminium and battery raw materials will be needed in ever greater quantities to build the electric vehicles (EV), batteries and power grids of the future. Despite growing demand from EVs in particular, we expect 2022 to be a smoother year, as the global economy continues to put distance between itself and the most acute period of the Covid-19 pandemic.

Read on for a snapshot of our 2022 outlooks for key energy transition metals: aluminium, copper, lithium, cobalt, nickel, graphite.

Aluminium prices set to recover in 2022

Aluminium prices continued their correction in the fourth quarter of 2021 on the back of falling coal prices in China, plans by Russia to remove its export tax next year, and news of more smelting capacity restarts outside China (triggered by higher prices).

While we are cautious on near-term price sentiment, we believe most of the selling has been done, which should allow prices to move into consolidation mode. We are still bullish overall.

There is plenty to keep prices elevated, including low stocks, strong demand, uncertainty over European energy supplies, reduced aluminium output from China due to power rationing, geopolitical risks around developments near the Russia-Ukraine border and inflation concerns.

With on-warrant LME stocks at their lowest since 2005 and a large global deficit ahead in 2022, prices should gradually recover in the months ahead once a base has been made.

Deficit ahead in refined copper market in 2022, concentrates market close to balance

After an extended period of correction and consolidation between May and September 2021, copper prices have rebounded markedly since the start of October. We expect copper prices to perform well in the months ahead because we think that we are in a stagflationary environment (owing to supply chain bottlenecks) and believe that the deficit in the global refined copper market is set to prevail in 2022.

Total world copper mine production growth could surge to 7% in 2022 from just 2% in 2021. Such strong growth will bring the global concentrate market back to balance in 2022 after two deep deficit years. However, we expect a higher rate of supply disruptions next year given so much new and expanded capacity due to come online or ramp up.

We expect a bigger deficit of refined copper of 571,000 tonnes for 2021 as a whole, assuming 2.2% growth in refined output and 2.5% growth in refined usage. We also expect the refined market to remain in a deficit in 2022.

Even though the Omicron variant constitutes a potential bearish risk to our overall copper outlook, we continue to think that the bull market is not over yet. The consolidation from May was necessary after prices rose too fast and too hard. Sentiment is now in check and positioning is clean.

Consequently, we have a bullish price outlook for the rest of 2021 and going into 2022.

Lithium tightness expected to last well into 2022

We expect the lithium market to remain tight for the rest of 2021, because of price performance, stronger-than-expected demand growth and the slow return of idle production capacity. We expect additional supply to relieve the present tightness as 2022 unfolds.

For now, it appears as though the tightness will last well into the new year – the level of destocking by downstream processors, convertors, consumers and hoarders will determine whether prices hold at these levels, drift lower or push higher still.

Apparent demand is expected to be stronger than actual demand – the supply chain will likely want to restock after this expected period of destocking and expanding downstream capacity will need to carry ever larger amounts of working stock.

After a brief consolidation, the fact prices are on the rise again suggests consumers have decided they cannot afford to destock too much, with some prepared to chase prices higher in order to keep inventories topped up. However, given the already massive price gains in 2021, we expect consumers to be increasingly reluctant to chase prices higher and higher.

The question is how long it will take new material from expansions and restarts to be commercially available to the market. We should expect ramp-up issues and material will need to be qualified – a process that normally takes between 6-18 months depending on each company’s policy.

Cobalt prices expected to stabilize in 2022

Cobalt prices rallied strongly in 2021 with the Fastmarkets standard grade metal price up by 99.3% compared with the end of 2020, but the market is now being buffeted by both headwinds and tailwinds.

Benchmark cobalt prices continue to rise and that is lifting other cobalt prices in China, even though demand in China from NCM batteries is not as strong as it would have been had LFP batteries not seen a surge in demand. But, with so much of the world’s processing being done in China and the strained shipping conditions, it means supply from China to the international market is not as fluid as it would normally be.

With greater interest in LFP battery chemistries and with EV sales still potentially likely to suffer from the semiconductor shortage, we would not be surprised if the current rise in cobalt prices is limited and if prices fall back again as the fourth quarter of 2021 progresses.

We think prices are near their peak as we expect production increases in 2022, combined with weaker than expected demand from consumer electrics, due to semiconductor shortages, plus the surge in LFP demand, to weigh on prices.

Nickel traders continue to buy the dip for now

Generally, for nickel and many other metals exposed to the energy transition, we see recent price weakness as a healthy correction within an ongoing bull market. Nickel’s performance in the past month supports that thesis.

While China’s economy may put the brakes on somewhat in the face of macro headwinds, history shows that the government is quick to resolve problems and preserve growth. Meanwhile, the rest of the world still looks structurally bullish – demand is robust, infrastructure projects are under way, electrification is accelerating, shipping congestion and supply disruptions are affecting availability, stock levels are low, and central banks seem to be in no hurry to raise interest rates. This picture gives us confidence to maintain a bullish bias in our price forecasts and gives traders the confidence to continue their buy-the-dip strategy.

Graphite’s dependence on China

After exhibiting relatively stable price performance for much of the year, graphite prices have posted impressive increases in recent weeks, spurred higher by a combination of rising costs and tighter supply in China, shipping issues and higher freight rates, and stronger than expected demand from the EV battery sector this year.

We maintain the view that both flake and spherical graphite prices will trend stable to higher in the near term. The only potential reprieve we see for graphite prices would be if the power constraints diminish EV lithium-ion battery production, and in turn reduce demand for graphite anodes sufficiently to stem the upward pressure on graphite prices.

Numerous challenges are ahead for the graphite industry as it develops to meet the needs of the rapidly growing EV sector. While debate persists around cathode chemistries, with LFP cathodes gaining ground in China in recent months at the expense of NCM cathodes, these various lithium-ion battery chemistries are all utilizing graphite anodes. In the coming years, exponential growth from the EV sector will propel the industry’s graphite requirement far above demand from traditional consuming sectors.

The post Energy transition metals price outlook 2022 appeared first on Fastmarkets.