Sharp price differences in industrial metals market

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Metal and mining sector industry

Price movements in the industrial metals market have varied widely so far this year.

Mixed picture of price movements, with extreme risers and decliners

The price of nickel has gone up by 32% since 1 January due to an Indonesian export ban, while iron ore and coking coal prices came down by almost 30% and 19% respectively in the same period, due to an oversupply. Given the current imbalance of supply and demand (with supply exceeding demand) and growing inventories, ABN AMRO believes that the recent spurt in the price of nickel is excessive and expects the price to come down.

Good prospects for base metals market

Market conditions for most base metals are set to improve on the back of a perkier global economy, declining inventories (of aluminium, copper and zinc) and strengthening demand of end-user sectors. ABN AMRO expects the Chinese economy to be resilient, keeping demand for base metals healthy. The aluminium market is suffering from adverse conditions – such as large inventories, overcapacity and limited reduction of capacity – but prospects for demand remain favourable. Copper prices are more volatile and are now under pressure due to increasing uncertainty on the Chinese market. The outlook for the zinc market is promising, partly as a result of declining inventories. With these prospects, we expect aluminium, copper and zinc prices to rise. ABN AMRO has raised the three-month outlook for aluminium, nickel and zinc prices and kept the three-month outlook for the price of copper stable. The average prognosis for all base metals for 2014 remains unchanged.

Falling steel prices

The current balance between supply and demand on the global steel market offers little in the way of support for steel prices. Global steel production grew in early 2014, gaining 3.6% year-on-year in the first four months of the year, with strong production growth seen in Europe (+6.3%) and China (+4.9%). Demand for steel in this period, however, failed to absorb the extra supply. As a result, prices of hot-rolled steel (HRC) fell in China (-4.2%), Southern Europe (-3.5%) and the United States (-2.7%). Margins for steel factories have, however, improved since early 2014 thanks to the sharp decline in prices of raw materials for steel production. With the upcoming third quarter’s (seasonally) weak demand for steel, ABN AMRO expects international steel prices to come down further.

The complete Industrial Metals Monitor can be downloaded here (Dutch only).

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