Commodities | Feb 22 2024
Analysts anticipate a better pricing environment for aluminium, platinum, silver and gold, but not so for natural gas.
-Positive outlook for aluminum
-Improving demand could push platinum prices higher in 2024
-Gold to rise towards US$2,200/oz by year’s end
-Ongoing weakness expected for natural gas
By Nicki Bourlioufas
Aluminium is ready for a come-back
The outlook for aluminium prices is positive in 2024 as rising demand against tighter supply will likely push prices higher in 2024.
Prices are expected to recover from the hit they took during China’s extended lockdowns, according to analysis from Longview Economics. Platinum too is expected to recover with greater demand from the automotive sector.
Aluminium prices have traded in a relatively tight range since 2022 and are now hovering around US$2,050/tonne after peaking at US$4,000/tonne in early 2022.
Prices fell that year following extended Chinese lockdowns and have stayed down since.
Longview analyst Bradley Waddington believes the fundamental outlook is improving, with many of the key global producers reducing supply, while key sources of demand are improving.
On the supply side, the global aluminium production outlook is one of restricted supply. China’s aluminium production is capped, while supply from other producers is trending lower.
On the demand side, aircraft orders are rising as production rebounds from the pandemic lows; that trend is underpinned by strong global air traffic activity.
Longview expects this trend to persist, sustaining the demand for aluminium.
In China, EV production is accelerating. EVs use almost twice as much aluminium as conventional cars and rising EV sales in China, which account for over 40% of new car sales, will underpin greater demand for aluminium.
Elsewhere around the globe, the outlook is bullish, driven by the rising use of aluminium in various clean energy technologies.
Platinum in focus
ANZ Bank commodity strategists Soni Kumari and Daniel Hynes expect platinum to gain this year as the precious metal looks inexpensive against the backdrop of a growing market deficit.
Platinum has traded well below its pre-pandemic average, despite constrained mine production and stronger demand over the past year.
Over the past six months, gold prices have risen over 3%, while platinum is down -6.3%.
Improving demand in car manufacturing is expected to buoy platinum, which has a dual use as an industrial metal and a precious metal.
“We estimate the market will remain in deficit due to limited supply growth and healthy demand. Support will also come from rising gold prices when the US Federal Reserve begins cutting rates,” said Hynes and Kumari in a recent research note.
Reflecting greater demand, Chinese platinum imports rose 18% y/y in 2023 to their second-highest level of 3.27moz.
Constrained mine supply has been ongoing since 2022 and is likely to continue, which will support prices.
South Africa contributes more than 70% to global production and that country still faces operational challenges.
Miners have experienced electricity outages and other operational challenges that resulted in production losses of more than -10% y/y in 2022. Output remained subdued in 2023.
While power availability in South Africa is expected to improve this year, and output likely to rise to 4.1moz, this would still be -7% lower than pre-pandemic levels.
Overall, global mine production should rise 3% y/y to 5,715koz in 2024 though low platinum prices are keeping a quarter of global mine production unprofitable, capping supply, according to Hynes and Kumari.
Platinum is benefitting from a substitution from palladium to platinum to reduce carbon emission in car manufacturing.
The World Platinum Investment Council (WPIC) estimates platinum substitution demand at 700koz in 2024. This would take auto catalyst demand above 3,000koz, the highest since 2017.
Gold and silver to shine too
ANZ Bank’s Hynes and Kumari are equally upbeat on gold.
The precious metal’s recent price consolidation over US$2,000/oz is likely to extend over the first quarter of 2024, both analysts predict.
Gold should rise towards US$2,200/oz by year-end with any easing in monetary policy in the US likely to support prices.
Gold prices finished January -1% lower at US$2,053/oz.
Silver is largely expected to follow gold, with strong industrial and investment demand projected to push the price of silver above US$25/oz in the first half of this year.
No relief for NatGas
Having dropped squarely below the US$2/MMBtu mark for the first time in years, natural gas is waiting for a catalyst, and a substantial one at that, before prices can improve, according to commodity analysts at RBC Capital Markets.
Despite cold weather records in the Northern Hemisphere in January, near-term forecasts point to slightly below-normal heating degree days in February and March, so weather seems unlikely to prove any catalyst to improved prices.
On the other side, natural gas supply is buoyant, up 2.4% y/y year-to-date (as at 12/2/24), which will likely put a cap on gas prices, the analysis suggests.
RBC Capital analysts can’t see a catalyst in the near term with recent production trends, current near-term weather forecasts, buoyant supply, all weighing on prices.
“The market is very down on gas with plenty of fundamental and weather-related reasons to cite. Additionally, positioning remains weak with managed money net short, and in our view, we do not think there’s much evidence to the contrary at this time.”
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