US-China trade conflict further added to the negative sentiment. Going forward, slowing Chinese economy remains a key concern. Lower inventory is the key support. Key trackable for 2019 is – resolution of US –China trade conflict and an announcement of stimulus in Chinese economy if any.
We have a positive view on Nickel and negative view on Lead and Zinc. Copper and Aluminum are expected to maintain a downward trajectory during the early part of 2019 before entering into a consolidation phase.
During the January-November period of 2018, production has increased by 1.4% to 58.82 million tones. The US have lifted sanctions on Rusal, the world’s largest aluminum producer and the strike has ended at Alcoa’s Australian alumina refinery.
On the contrary, China’s biggest aluminum producers are discussing production cutbacks of 800,000 tonnes and LME aluminum inventories stand at just 1.2 million tonnes.
We expect aluminum to remain bearish towards $1,820 per tonne for the first quarter of 2019 on the current oversupply worries though production cut may stabilize it in the second half of 2019.
Global copper production has increased due to end of mines strike in Indonesia and Chile. For 2019, world refined copper consumption is expected to be 24,890 metric tonnes implying a narrowing of deficit to 65 thousand tonnes.
Looking at the market fundamentals and the current state of the economy, we expect Copper prices to remain weak unless any supportive fiscal and monetary measure comes from China to help the economy grow.
We expect copper prices to trade in a range of $5700 per tonne to $6250 per tonne.
Global Lead market is expected to turn into a surplus of 50,000 tonnes from deficit of 120,000 tonnes in 2018. The mine supply is expected to increase by 4.1% in 2019 as some mine supply is likely to come on-stream from Coeur Mining’s Silvertip mine in Canada and Vedanta’s Gamsberg.
China contributes around 40% to the world’s lead demand but tight environment inspection has put production limitation.
During Q1 2019, we expect MCX Lead prices to trade positive on lower Chinese production but during the second half of 2019 we expect Lead prices to witness selling pressure on surplus scenario and to decline towards $1800 per tonne.
Nickel deficit in 2019 will fall to 33000 tonnes from 146000 tonnes in 2018 due to rising mine supply from Indonesia Philippines and China. But Nickel demand in long term is expected to increase from electric vehicle sector and lithium-ion batteries.
Also inventories have fallen, Shanghai stocks stands at just 14,517 tonnes, down from a 2016 peak of above 100,000 tonnes. On the other side, LME stocks have fallen by 41% since the January 2018. We hold a bullish outlook in Nickel for 2019 with price target of $13250 per tonne.
Global zinc market is expected to wipe out its deficit in 2019. Global zinc mine production will increase by 6.5% in 2019 as strong prices in past have influenced zinc miners to bring the idled capacity back online.
Century mine and Dugald River mine is likely to expand its output capacity by 250,000 tonnes and Rampura Agucha mine in India will add 100,000 tonnes. Vedanta’s mine in South Africa has plans to double its capacity in 2019.
We expect LME Zinc prices to remain weak and move towards $2350 per tonne.
The author is a commodity analyst at Narnolia Financial Advisors.