For a year that ends there is one that begins. In this article we go to analyze the performance of 2019 and what we can expect in 2020.
In 2019, most industrial metals were in deficit and world stocks fell. Low prices have discouraged material recycling/recovery, infrastructure and production investments have been contained due to uncertainty about the future, given the trade disagreements between the US and China.
In the year just ended, only nickel (+25%) and copper (+ 4%) recorded positive performances.
Lead remained stable (-0.5%), while aluminium (-2.9%), zinc (-4%) and especially tin (-14%) fell.
From the point of view of volatility, we point out the nickel that in August 2019 had reached 50% since the beginning of the year.
In general, however, all non-ferrous metals have recorded a lower volatility than the historical volatility of the last ten years. If compared with other asset classes, however, remains a very high volatility.
What can we expect in 2020? The global slowdown remains the key.
Although a Phase 1 agreement has been signed between the US and China, the uncertainty seen in 2019 could persist in 2020, due to the so-called Phase 2 trade negotiations. The industry could be the biggest beneficiary of the possible easing of tariff concerns even though the fundamentals of most industrial metals are not so positive.
Demand for many metals is weak due to the global slowdown. Chinese data emerging are not positive. The industrial sector is in slowdown (from 5.9% to 4.5%), GDP is down (from 6.6% 2018 to 6% Q3 2019) and the automotive sector is decreasing by 4%.
In 2020 the fundamentals of most industrial metals will deteriorate further, due to the expected slowdown in Chinese raw material consumption.
For the three main non-ferrous metals (aluminium, copper and zinc) the outlook for 2020 of the major analysts is quite neutral and close to current prices. For nickel, lead and tin, on the other hand, the average is higher than current prices.
Aluminium, weak demand
The price of aluminium is suffering mainly from the economic phase that China is going through. In recent years, aluminium consumption has averaged +3%. It is likely that demand for 2019 will be assessed negatively. For some time now, environmental issues have been of paramount importance; a good number of smelters that meet pollution standards will be ready in 2020. If demand suddenly increases a rally should be avoided by a prompt supply response.
For these reasons we expect relative stability around average values of $1800 – $1850 for 2020.
The average of 20 forecasts from investment funds and banks indicates an average aluminium value for 2020 of $1821.
Copper, the most financial metal
The price of copper will continue to be driven by macroeconomic and political factors rather than by actual fundamentals. The International Copper Study Group (ICSG) reported in October that the copper market was still in deficit in 2019 (but lower than in 2018) and likely to return to surplus in 2020. Copper will remain subject to speculative flows and to the more or less pronounced risk aversion and market volatility that will occur this year. We expect an average of $6300 – $6350 in 2020.
The average of 20 forecasts from investment funds and banks indicates an average copper value for 2020 of $6111.
Zinc, possible surplus supply in 2020
According to the International Lead and Zinc Study Group (ILZSG), global zinc demand fell by 0.1% in 2019 to 13.67 million tonnes. In 2020 it will increase by 0.9 percent to 13.80 million tons. Chinese demand is estimated to grow another 1.2 percent in 2020. In Europe demand remains weak again, for 2020 it is estimated at +0.5%. Zinc consumption in India and Japan is bad, with a forecast of recovery in 2020 for India and a further decline in demand in Japan. Zinc mining production is expected to increase by 4.7% in 2020. It is likely that the deficit of 2019, the lowest in four years, will turn into a surplus in 2020, forecast by ILZSG at 192,000 tonnes.
These factors guide us to a neutral view for zinc with an average price of $2350 – $2400 for 2020.
The average of 18 forecasts from investment funds and banks indicates an average zinc value for 2020 of $2356.
Nickel, possible rebound
Nickel had the best performance in 2019. The annual highs were reached in September after Indonesia, one of the two largest producers in the world (the other is the Philippines with 340,000 tonnes), announced the introduction of an export ban on nickel-containing ore as of January 2020, two years ahead of January 2022. Thanks also to the demand for equipment for the electric car industry, the price has risen rapidly.
The outlook is more positive than other metals thanks to the more solid fundamentals. We expect nickel prices to rise to around $15000 – $16000 for 2020.
The average of 20 forecasts from investment funds and banks indicates an average nickel value for 2020 of $15528.
Between May and October the lead retraced the rally it had recorded after the supply interruptions of the Port Pirie Foundry in Australia. Lead is also expected to have a surplus in 2020 after three years of deficit, although stocks currently remain low. Glencore announced the closure of the Belledune Foundry in Canada and will restart Port Pirie.
We expect lead to have an average value of $2100 in 2020.
The average of 15 forecasts from investment funds and banks indicates an average lead value for 2020 of $2019.
The year 2020 could be characterised by a limited supply of refined tin due to production cuts in Asia. Tin demand could bounce back. This could stimulate a wave of supply in the first quarter of 2020.
We expect an average price of $17800 during 2020.
The average of 11 forecasts from investment funds and banks indicates an average tin value for 2020 of $20112.
The dynamic of the EUR/USD exchange rate remains linked to the decisions of the ECB and the Fed, both of which are in a waiting position. The weakness of the euro continues, after the ECB’s choices, dictated by a still fragile economic framework within the eurozone. The combination of the latter two could justify a further depreciation of the single currency. On the other hand, the Fed has paused the downward cycle of interest rates, at least in the first half of 2020, an aspect that is unlikely to weaken the dollar, supported by the “Phase 1” trade agreement with China and reinforced by what appears to be a rapid return to geopolitical tensions between the US and Iran. However, we estimate that the EUR/USD exchange rate could rise in 2020, returning above 1.13 with an average of 1.14 – 1.15 in 2020.