Commodities | Dec 10 2024
A glance through the latest expert views and predictions about commodities. Brokers update 2025 outlooks and mining stock preferences for 2025.
-Copper down short term, up long term
-Alumina up, reflecting on aluminium
-Ongoing strength in gold
-Lithium weakness to continue
-Sector analysts' stock preferences
By Greg Peel
Dear readers, China's Politburo issued a statement overnight suggesting more proactive fiscal policy, moderately loose monetary policy, extraordinary counter-cyclical adjustments to boost consumption forcefully and to stabilise property and the stock market.
All the research mentioned in today's story was written and published before the Politburo statement.
Copper
Following the short-lived rally after China's stimulus announcements in September, the copper market has turned cautious in recent months, RBC Capital notes, as China's stimulus efforts have yet to have a noticeable impact and Trump's election win has brought fresh concerns around tariffs which may impact Chinese and global growth.
It may take a few months before we see clarity, as was the case in 2016 when the first Trump administration threatened and later applied tariffs, hence the copper price may be rangebound to start 2025, but RBC is optimistic any new tariffs won't have a significant impact on copper demand and fundamentals will reassert themselves.
On the demand side, a combination of global rate cuts and fiscal stimulus can drive higher global industrial production. RBC forecasts a similar increase in supply as new mines ramp up which could keep the market largely balanced in 2025.
After that, the analysts don't see much supply that has been sanctioned, and forecast growing deficits from 2027 onwards which could lead to a period of substantially higher prices.
RBC has trimmed its 2025 copper price estimate to US$4.00/lb from US$4.50/lb, 2026 to US$4.50/lb from US$5.00/lb as it forecasts balanced markets in both years and maintains US$5.00/lb from 2027-2028 and US$4.00/lb long term from 2029.
The analysts continue to see rising deficits in the coming years which would require higher incentive prices to spur a supply response, thus medium and long term price forecasts may prove conservative.
RBC further sees a positive multi-year story for copper, believing the energy transition including renewable energy, EVs and the associated grid improvements can drive strong demand for copper, while the data centre build-out could also add a new layer of demand. This growing demand is set against an aging supply base without much new supply committed to come online post 2025, and it's getting harder to build new mines due to rising costs and social issues.
For this reason, RBC believes a period of higher prices is needed to spur investment in new copper mines and maintains an estimate for 2027-2028 of US$5.00/lb. This price could be conservative if demand accelerates, the analysts suggest, and the mining industry struggles to build new supply.
The outlook for commodities has deteriorated since November, UBS notes, and prices for major commodities have all retraced on concerns that Trump's proposed tariffs will drive lower global growth and headwinds from a stronger US dollar, and China's stimulus will underwhelm. There is significant uncertainty on the impact of potential tariffs and magnitude of China stimulus going into 2025 and, as a result, it is too early for UBS to turn positive on all industrial metals.
UBS prefers commodities underpinned by compelling supply dynamics and demand supported by energy transition applications, being copper and aluminium, as well as gold, which benefits from lower real rates and geopolitical uncertainty.
A less favourable macro backdrop is not typically bullish for copper, but UBS remains constructive and expects the physical market to be tighter in 2025 due to supply constraints and demand holding up, albeit not accelerating.
The broker still expects mine supply growth in 2025 to be modest (around 2%) and refined production to be weaker with record low benchmark smelter fees and tightening of the scrap market to result in smelter closures.
Macquarie is Underweight copper in the near term but more constructive longer term.
Aluminium
The aluminium market is facing multiple challenges, ANZ Bank analysts note, including changes to trade policies, supply disruptions of bauxite and alumina, and sanctions. China's recent cancellation of the 13% export rebate will impact aluminium flows through the first quarter 2025, and lower smelter margins can make small producers unprofitable.
Additionally, Trump's proposed import tariffs are likely to keep the US spot premium elevated. But while shifting trade policies create uncertainty around supply flows, the tightness in raw materials and narrowing smelter margins will have a more profound impact on the market, ANZ believes.
In Africa, Guinea Alumina Corporation's suspension of bauxite exports has worsened global supply, ANZ points out, lifting the price of raw material to a record high. If GAC does not resume exports, the tightness will persist into 2025. And higher alumina prices will increase production costs, subduing smelter profits.
Aluminium production growth in China is likely to plateau due to a 45mt capacity limit and environmental regulations, ANZ suggests. This will leave global output growth at 2.3% or 73.5mt in 2025. With demand growing at 3% to 74mt, the market will be undersupplied. ANZ believes a negative market balance will protect the downside for aluminium prices near US$2,400/t.
RBC Capital has raised its long-term aluminium price by 9% to US$1.20/lb to reflect higher long-term alumina prices.
Macquarie is Overweight alumina and Equal-weight aluminium.
Gold
RBC Capital has raised its 2025 gold price forecast by 6% to US$2,823/oz. The analysts' scenario ranges outline approximate price upside by 2025 to US$3,100/oz and downside to US$2,500/oz, with these ranges now a large positive skew versus spot.
Despite a post-election dip to around US$2,550/oz from record highs, current prices are attractive against RBC's 2025 expectations, which are supported by easing monetary policies and solid investment demand. While its 2029 long term forecast remains at US$2,200/oz, RBC's mid-term prices for 2026-2028 have risen by an average of 11%, reflecting growing mining costs and the positive bias of the analysts' model.
UBS remains constructive on gold, expecting the price to be supported by lower US real rates, heightened geopolitical uncertainty and increasing allocations by central banks.
Macquarie is Equal-weight on gold, although ahead of consensus forecasts.
And the Rest
Along with alumina, Macquarie is Overweight metallurgical coal.
Along with aluminium and gold, Macquarie is Equal-weight nickel.
Along with copper, Macquarie is Underweight iron ore, lithium, zinc, manganese and thermal coal. Longer term, Macquarie is more constructive on both copper and lithium.
For iron ore, over the near-term RBC Capital is cautiously optimistic on Chinese demand. The analysts forecast iron ore to increase to US$110/t in the first quarter 2025 due to restocking and a seasonal dip in seaborne supply, and forecasts US$100/t in 2025.
On met coal, RBC also remains upbeat on the fundamentals for 2025 as it expects Indian steel production to rise and China to remain stable. The analysts maintain a price estimate for next year of US$250/t.
RBC has once again pulled down price forecasts for lithium. Nevertheless, recent production cuts will significantly narrow the market surplus through to 2027, the analysts note, and recent strong demand and drawdown inventory in China are encouraging.
RBC forecasts lithium chemicals to be in surplus next year, but feedstock/spodumene will likely see deficits during periods of high demand, being the second and fourth quarters.
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