During the LME Asia Metals Seminar 2023, one of the panel discussions was titled “The outlook for metals in 2023”, where several guests discussed about key trends in base metals such as nickel and copper.
This article will summarize some of the key trends by Yan Chen, Managing Director of CICC, and Guy Wolf, Global Head of Market Analytics from Marex. Additionally, exclusive research information from Shanghai Orient Futures will also be presented so that traders can be informed of the most recent updates.
Nickel
As covered in the “Nickel News and Nickel Market”, nickel faces a large growth potential with Indonesia as one of the largest key players. From the CICC Research and presentation by Chen Yan, it is expected that nickel consumption will increase to c.4mn metal tonnes in 2025. Primarily, this is caused by the increase in battery use of NMC types of batteries for EVs, which may cause CAGR for nickel used in batteries to reach 45.5% over 2021- 2025. Similarly, with other metals such as stainless steel increasing in demand, it is estimated that CAGR may be 5%-6% in 2021-2025, while nickel demand CSGR will be around 9.3% in 2021-2025.
- China International Capital Corporation Limited, LME Asia Metals Seminar 2023
Supply and Demand
For the short-term price, CICC has also anticipated that the revolution of laterite would alleviate the supply shortage and reduce the production cost, leading to a fall in the spot price of NPI and nickel sulphate. From the market, due to geopolitics, the energy crisis, low inventory, and other policy-related factors, it is expected by CICC that the market will be bullish on nickel futures, resulting in high prices.
- China International Capital Corporation Limited, LME Asia Metals Seminar 2023
Nickel has emerged as the worst-performing metal on the London Metal Exchange (LME) this year, with prices experiencing a decline of over 30% year-to-date. A significant factor contributing to this price decline has been the disappointing recovery in Chinese demand, leading to nickel prices hitting a one-year low in August.
The outlook for nickel's performance remains challenging, with several factors likely to exert downward pressure on prices. These factors include a weak macroeconomic environment and a sustained market surplus. Notably, the supply from Indonesia is expected to continue surging to meet the increasing demand from the battery sector.
Traditionally, market surpluses have been associated with Class 1 nickel. However, in 2023, the surplus is expected to be driven by Class 2 nickel. This shift in the source of surplus further adds to the challenges facing the nickel market, suggesting that the underperformance of nickel prices may persist in the foreseeable future.
Copper
For the copper market, Guy Wolf from Marex and the team expect higher volatility, and the absence of long-term trends since 2021 Q2 has reduced positioning. Additionally, factors such as margin requirements, and interest rates have also dampened activity.
Inventory
With low inventories, there are unlikely to be supply buffers. Similarly, higher volatility and the absence of a long-term trend since 2021 Q2 have reduced positioning. Additionally, factors such as margin requirements and interest rates have significantly raised the cost of holding inventory.
Marex has also taken into account smelter activity levels from Savant (which provides indices and monitoring on smelting activity across the globe). The data indicates that global smelter activity is picking up from a low level, led by China.
Overall, the precedents of Jul 2020, Mar 2021, and Feb 2022 suggest a bullish near-term copper outlook for copper.
- China International Capital Corporation Limited, LME Asia Metals Seminar 2023
From China, on 22 May 2023, while the global warehouse decreased and SHFE inventory decreased, LME inventory increased, and COMEX inventory has maintained.
From the supply side, the production and copper supply of overseas copper mines has gradually recovered. However, protests in the Calama region in Chile have hindered logistics, and the effect of overall production was limited. Domestic smelters’ demand for copper slowed down as well in 23Q2, while copper concentrate processing fees continued to rise.
Due to the low price of sulfuric acid, smelter profit was relatively limited. The Chinese smelting industry is likely to expand production in 2H23 though maintenance may hinder growth. Coupled with inflation, policies, and conflicts, smelters may face restrictions. Shanghai Orient Futures analysts recommend the continued follow-up on the African market of non-standard copper.
From the demand side, Chinese recovery has slowed, while overseas demand has declined. In the short term, the market is likely to be more concerned about demand growth. Shanghai Orient Futures expects that there will be cyclical fluctuations in demand. This is because though copper demand is facing a positive recovery, when copper prices fall sharply, replenishment of demand will cause more destocking of domestic (Chinese) inventory. This replenishment is not likely to be adequate to meet the demand and orders.
From a micro perspective, the overall rate of domestic copper production is weaker than the previous month, and orders and slowing down in some overseas enterprises.
From a macro perspective, the overall rate of domestic copper production is weaker than the previous month, and orders are slowing down in some overseas enterprises.
Overall, the macro bearish sentiment still needs time to change, fundamentals will only form weak support for the price in the short term. Traders may consider buying in the short-term but not the during the rebound on a high position as it is unlikely to form a trend.
- Shanghai Orient Futures, Weekly Updates on the Fundamental Data of Copper Industry Chain, 20230522
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