Global metals & mining 2017 outlook Kenneth W Hoffman, Zhou Zhang, Eily Ong

Bloomberg Intelligence analysts

Global base metals 2017 outlook

The base metals with the biggest price gains in 2016 have been the ones that underwent sizable production cuts in 2015, especially zinc. In 2017, zinc is expected to have the biggest increase in supply, while copper will see significantly less.

The declining value of the yuan against the U.S. dollar, which makes metals more expensive inside China, will affect demand. The expanding use of electric cars may, for the first time, have a significant impact on metals such as nickel.

Mining companies have responded to weak metal prices partly by shutting mines, as occurred with zinc and to a smaller extent copper and nickel. The industry also cut capital spending on new mines, which could weaken supply growth.

Battery technology may drive the future of lead

Lead has performed in the middle of the base-metal pack, rising 22% in 2016 after a 3.5% drop in 2015. Prices have been stronger in 2H after a volatile 1H, with expectation of a tightening market pushing prices higher.

China, the world’s largest lead producer and consumer, accounts for 40% of both global totals. Longer-term issues plague lead, such as a decline in Chinese demand for lead-acid batteries as the e-bike sector switches to lithium/nickel batteries.

Zinc mine closings may leave persistent deficit

Zinc has soared 58% this year, making it the best-performing base metal. Demand has been supported by strong global auto sales and a resurgence of Chinese construction. “

Bloomberg Intelligence’s model shows a base-case deficit of 1 million metric tons through 2018, assuming 2% annual demand growth and the continuation of announced mine projects. The model also assumes shuttered zinc mines don’t restart, though higher prices may bring the metal back onto the market.

Nickel prices may depend on Asian ore suppliers

After nickel markets rebounded in 2016, the actions of two Asian suppliers of the metal may drive pricing in 2017. Indonesia has indicated it may relax its ban on nickel ore exports, which took effect 2014, while the Philippines said it may shut most of its nickel mines.

Nickel prices have been volatile in 2016, soaring to $11,575 a metric ton in November after touching a 13-year low of $7,700 in February. The metal has gained 28% for the year, yet remains at less than half the 2011 peak of $29,300.

Copper prices surging, may have finally bottomed

Copper’s recent price surge follows massive moves in metallurgical coal, iron ore and zinc. All base metals are now up double digits on the year. Traders appear to have been anticipating the move, with combined futures open interest in copper on the LME and CME surging to an all-time high.

The market may be anticipating that global demand, led by China and perhaps an infrastructure boom in the U.S. pushed by President-elect Donald Trump, will lead to tightness in metal demand.

Copper miners delay 565,000 tons of new supply

Delays in several copper projects since March have pushed back 565,000 metric tons of new supply, according to Bloomberg Intelligence analysis. In 2017 alone, 62,000 fewer tons will come to market than previously expected.

Global copper demand may continue to grow at a moderate pace as China, which accounted for 45% of global demand in 2015, transitions toward an economy driven by domestic consumer spending rather than government infrastructure investment.

Global precious metals 2017 outlook

The tailwinds behind precious metals that supported prices in 2016 will only grow in 2017. The risk of inflation, which is a positive for precious metals, continues to increase as global money supply expands.

Precious metal output may remain constrained as producers run into high costs and low grades. Mining currencies strengthened in 2016, sending operational costs higher. Anti-globalization sentiment could hurt the U.S. dollar, the global currency, which helps gold.

Strong growth in the U.S. as well as a surge in U.S. interest rates could help the dollar’s value, hurting the precious metals complex.

Trump victory changes metals markets overnight

Donald Trump’s victory in the U.S. presidential election is rippling through global metals markets and may have a long-term impact. A U.S. pullback from international relations could damage the dollar and boost prices for gold and other precious metals.

Trump also has talked about tearing up trade agreements, a negative for metals, while investing in massive infrastructure projects, which would boost demand for copper, zinc and steel.

Until Trump’s policies become clearer, markets are in a guessing game.

Platinum metals demand may decline

Global net demand for platinum, palladium and rhodium is likely to rise on higher autocatalysts consumption in 2016 due to tighter emissions legislation, based on Johnson Matthey data. Supply is forecast to slide, with the exception of palladium, driven by lower South African output.

Europe is overtaking China as the world’s top platinum consumer this year, but the metal may move into surplus in 2017 on lower use by European automakers, more recycling and weaker Chinese jewelry buying.

Silver’s core demand drivers are industrial, solar

The pace of silver investment will, like other financial markets, be determined by the Federal Reserve’s next interest-rate move. Yet industrial applications, at 53%, continued to be the largest contributor to the metal’s demand in 2015, and are likely to retain their dominance in the silver market this year, based on BI calculations using Metals Focus data. The silver price will play a crucial role in the metal’s future demand, as the industrial applications increase continues, particularly in solar consumption.

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