Positive sentiment lifts base metal prices

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Metal and mining sector industry

Overcapacity puts pressure on prices in the steel industry and iron ore market.

Steel prices slump as a result of overcapacity

Steel industry prices have fallen, with China and Europe seeing the sharpest drops. China continues to face significant overcapacity. As domestic demand weakens, the oversupply is now making itself felt in international steel markets, putting downward pressure on steel prices. The price of iron ore has also fallen sharply as a result of oversupply, unlike the price of coking coal, which has rallied thanks to better market equilibrium. ABN AMRO believes steel sector prices will remain low as long as overcapacity continues to dog the market. The price of iron ore also remains weak, but could rebound if demand triggers a year-end rally.

Global economic growth: good for base metals

Macroeconomic conditions continue to be favourable. The economic outlook and forecasts for the leading metal-consuming countries are having a positive effect, ABN AMRO believes, on demand in the cyclical industrial metals markets. ABN AMRO anticipates that aluminium prices will continue to increase, albeit slowly. Current inventories as measured in weeks of consumption remain historically high, precluding any significant price increases in the short term. ABN AMRO also anticipates higher prices for copper, yet at a relatively slow growth rate. At this stage, the price is being influenced by macroeconomic developments, which can be very volatile. ABN AMRO believes that the price of nickel is poised to rally in the short term – most likely on the back of rumours about government policy, not because of any actual improvements in demand for nickel. Long-term demand prospects are more favourable. ABN AMRO’s long-term outlook for zinc is also positive, and is largely supply-driven (i.e. the growing scarcity of ore).

Positive extended outlook for industrial metals

Although the US economy continues to perform well, conditions in other leading metal-consuming regions are less favourable. Economic growth in China, for instance, lagged in the third quarter. ABN AMRO expects this growth to slow further as a result of corrections in the real estate market and measures to rein in the shadow banking system. In the second and third quarters, concerns in China about the outlook for industrial metals grew. In both China and Europe, where the economy is recovering, albeit very slowly, the demand for these metals is relatively low. ABN AMRO’s long-term outlook is positive. Although the growth rate in China is slowing, volumes remain relatively high. US demand is also expected to increase in the coming years.

For more information, please contact:

Casper Burgering, Manufacturing & Industrial Metals Sector Economist
+31 (0)20 383 26 93



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