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World Commodity Forecasts Industrial Raw Materials

  • ID: 2101443
  • February 2016
  • Region: Global
  • 114 Pages
  • The Economist Intelligence Unit
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After four years of decline in 2012-15, industrial commodity prices will face another challenging year in 2016. This was apparent from the early days of January, when prices fell sharply-alongside oil and equities worldwide-amid deteriorating market sentiment and investor concerns about demand from China. More generally, the downward pressure on prices results from oversupply, as production capacity-bolstered by a surge in investment during a decade-long boom in prices in the 2000s-far exceeds demand, which has weakened in line with China's economic slowdown.

China's continued economic rebalancing away from a dependence on investment will further soften demand for several commodities, for which China is the largest market. Low energy prices and broad-based US-dollar strength will also sap demand for commodities. (Most commodity prices are dollar-denominated, making commodities more expensive in currencies that are depreciating versus the US dollar.) Producers' response to the current price slump will eventually halt this downward trend. Yet production cutbacks have thus far been insufficient and prices continued to tumble in the final months of 2015.

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World Commodity Forecasts Industrial Raw Materials

Economist Intelligence Unit commodity price index
Industrial commodity prices will remain under downward pressure in 2016
Metals producers are beginning to respond to persistently low prices
The outlook for cotton and rubber prices is subdued
Oil prices have yet to find a floor
Brent will recover in 2017 as non-OPEC supply falls

Aluminium
Demand
Chinese aluminium demand growth remains robust
EU consumption will rebound after a slight contraction in 2015
US aluminium demand growth will moderate in 2016-17
Aluminium usage will stabilise in Russia and Brazil after sharp falls in 2015
Supply
Chinese smelters appear to have cut output in late 2015
Century reduces Mt Holly operations by 50%
Production costs are not only falling in the West, but within China too
Stocks and prices
LME aluminium prices take direction from the SHFE
China's dominance is making many uneasy

Coal
Demand
We expect China's coal demand to decline further in 2016-17
Stricter environmental regulations are detrimental to US coal demand
Competition from other energy sources is also weighing on US coal use
Coal use will fall in the EU in 2016-17
The EU has adopted binding emissions targets to 2030
India's coal consumption will remain robust
Supply
China's output growth will be nearly flat amid low prices and soft demand
US production is on a downward trajectory
The Indian government will struggle to double production by 2019
Australia will achieve a marginal increase in output in the near term
Stocks and prices
The rebound in 2016-17 will be modest, after prices halved in 2011-15

Copper
Demand
US interest-rate rises will reduce finance-related demand in China
Chinese smelters call on the State Reserve Bureau to absorb surplus metal
Chinese copper demand will expand by an average of 5.3% a year in 2016-17
Japanese copper consumption will see minimal growth in 2016-17
India will fuel Asian copper consumption
European copper demand will expand in line with economic growth in 2016-17
US copper demand will moderate in 2016, after a rebound in 2015
Supply
Projects in Latin America are pushing global mine production up higher
Global mine production growth will be hampered by disruptions
Further production cuts are on the cards amid persistently low prices
Miners are developing smelting facilities in Indonesia
2016 treatment charge negotiations hint at tightening concentrate availability
Chinese smelters agree to cut output by 350,000 tonnes in 2016
Stocks and prices
Chinese bonded-warehouse stocks have fallen since mid-2015
LME cancelled warrants imply lacklustre demand
Copper prices have fallen further in early 2016

Cotton
Demand
China's falling competitiveness is weighing on consumption
Inadequate textile-sector reforms will weigh on India's consumption growth
A power deficit and high operating costs hinder growth in Pakistan
Consumption in Bangladesh will grow, regardless of poor safety standards
Quicker growth in the EU will support consumption growth in Turkey
Supply
China's output will drop, despite generous subsidies to Xinjiang farmers
Cotton remains attractive in India despite subdued prices
Low price environment will weigh on output in the US
Pakistani government's efforts to support farmers will disappoint
Production will slide in Brazil as weak prices affect planting decisions
Australia will be one of few producers to see output rise
Stocks and prices
High stocks and weak demand growth will put downward pressure on prices

Crude oil
Demand
US consumption growth in 2016 will decelerate
Demand in OECD Europe will revert to long-term decline
Japan's oil demand will remain on a downward trend, despite low prices
China's demand growth will edge down
Other emerging markets will not make up for China's slower demand growth
Supply
OPEC output will remain high, as Iran returns to the market
US production will dip in 2016, after resisting the price declines in 2015
Russian producers hope to delay what seems an inevitable decline until 2017
Stocks and prices
Brent is forecast to average US$43/barrel in 2016

Gold
Demand
Low prices should support jewellery consumption in China and India
Risk of further falls in prices could result in larger net outflows by ETFs
The global economic environment does not favour retail investment
Industrial gold is less competitive than alternatives
Some central banks will continue to buy gold to diversify their reserve holdings
Supply
Chinese production will continue to add to global supply in the short term
After falling back in 2015, Australia's production will edge up in 2016-17
Peru's output will continue to rise in 2016-17, but downside risks remain
Low prices will deter recycling efforts in 2016
Producer hedging will add very little supply in 2016
Stocks and prices
There is little to support gold prices going into 2016

Lead
Demand
In China end-user demand for lead products has weakened
A small rebound in consumption is possible
Japanese lead demand will stabilise in 2016-17
EU lead demand will average around 1.6m tonnes/year in 2016-17
US lead consumption will not return to growth until 2016
Supply
After two years of falls, Chinese refined lead production will rebound in 2016
Smelter closures in the US and Peru will weigh down on production in 2016
Concentrate supplies will tighten from 2016 as closures are felt
Stocks and prices
LME/SHFE stocks fall by 30% in 2015, but stock flows remain volatile
Prices will recover only gradually, after hefty declines in 2015

Liquefied natural gas
Demand
Japan's LNG imports are expected to continue to fall in 2016-17
Restocking should lift South Korea's LNG imports next year
Reform of wholesale pricing should boost China's LNG imports in 2016-17
Indian imports will rise unless oil prices fall further
South-east Asia is becoming an important LNG market
Consumption in the Middle East and Turkey is set to grow strongly
The EU will absorb some of the new supply in 2016-17
Brazil's LNG imports are likely to fall in 2016
Supply
Qatar is having to adapt to greater competition in the market
Australia's LNG exports will continue to grow strongly in 2016-17
An increasing amount of Indonesia's gas will go to meet domestic demand
The first shipment of US LNG from Sabine Pass is expected in January
Algeria's export potential may be curbed by rising domestic demand
Yamal LNG in Russia is struggling to secure financing
Iran has ambitious plans to enter the LNG market
Nigeria has ambitious expansion plans
Prices
Producers will be forced into extra flexibility in their contracts

Natural gas
Demand
US demand will continue to increase, albeit at a slower pace than in 2015
Russian consumption will be limited by the domestic economic performance
Europe's gas demand will show a more settled pattern
Nord Stream-2 sparks more controversy within EU
China seeks to stimulate demand recovery with lower city-gate prices
A return to some nuclear use will come at the expense of Japan's gas demand
Supply
North American production continues to benefit from strong US demand
Russian production will increase despite new sanctions
Shale exploration in Europe has so far been disappointing
Iran courts upstream gas investment following nuclear deal
Saudi Arabia is planning new capacity
Stocks and prices
Price recovery will be muted owing to high production and stocks levels

Natural rubber
Demand
Continued expansion of China's vehicle fleet will support NR usage in 2016-17
India's NR usage should recover in 2016-17
Japan is likely to have accumulated NR stocks in 2015
"Other Asian" demand should grow steadily in 2016-17
We suspect that stocks were drawn down in the EU in the first half of 2015
Given the high base in 2015, growth in the US will slow in 2016-17
SR outlook will continue to affect NR demand
Supply
The Thai government has ramped up support for rubber farmers
Adverse weather could affect Indonesian output in 2016
Vietnam is expanding output, but export growth is more muted
Malaysian production is receiving government support
India's production is likely to pick up only in 2017
Stocks and prices
Prices will pick up from 2016 onwards, as supplies tighten

Nickel
Demand
China's volatile apparent consumption in part reflects stock movements
Nickel pig iron producers plan to lower output in 2016
Weakness in the stainless steel sector will weigh on China's nickel demand
Nickel use will grow in most advanced economies, albeit slowly
Supply
Nickel mines in the Philippines will benefit from Indonesia's export ban
Australia and Canada are stepping up output of nickel ores
Mine output growth in New Caledonia will accelerate in 2016
China's nickel producers face myriad challenges
Nickel companies are moving downstream in Indonesia
Russia's refined nickel output growth will be flat in 2016
Rising mine output will support refined production in Canada and Australia
Stocks and prices
Having fallen to a six-year low, prices will begin to recover in 2016

Steel
Demand
Chinese demand plummeted in the third quarter of 2015
US automobile sales and construction will support North American demand
EU consumption will grow modestly, with some support from the ECB
Growth in "other Asia" is likely to be steady, but not spectacular
Low energy prices should have a limited impact on Gulf steel demand
Supply
China's industry appears to be restructuring
US steel output will see a rebound in 2016
NAFTA governments are targeting steel dumping
Low prices lead to steel mill closures in the UK
CIS steel output will recover slowly in 2016-17 after a difficult 2014-15
India will be the fastest-growing Asian producer of steel
Iron ore prices will stay in a narrow, low band in 2016-17
Coking coal production cutbacks will return the market to balance from 2016
Scrap prices have finally adjusted to lower iron ore and coal prices
Stocks and prices
Utilisation rates will struggle to rise above 75%
Current prices are close to their absolute trough

Tin
Demand
Semiconductor shipments are falling across most regions
Expanding use of consumer electronics will support tin demand in 2016-17
Outside China, the market for tinplate is in long-term structural decline
China's tin demand growth, while slowing, looks set to continue
European tin demand will return to growth in 2016-17
US tin demand is in long-term decline
Long-term prospects for Japan's tin consumption look limited
Supply
China's production is breaking records owing to ore supplies from Myanmar
Indonesia has introduced a number of controls over tin exports
A third revision of Indonesian tin export regulations took effect in August
There are doubts about Indonesia's tin mine output potential in the long term
Only a small number of new mines and expansions are expected in 2016-17
Stocks and prices
Tin prices will rebound in 2016-17, amid market tightening

Zinc
Demand
China's zinc demand in 2016-17 will grow roughly in line with GDP
Zinc demand from emerging markets will struggle as the Fed lifts rates
Recovering vehicle markets will support zinc consumption in Europe
US authorities are moving to penalise Chinese galvanised steel imports
Japanese zinc demand will see a modest increase in 2016-17
Supply
Chinese zinc smelters agree to cut output by 500,000 tonnes in 2016
EU refined zinc production growth will continue to slow in 2016-17
Projects in India and South Korea boost output growth in Asia
The concentrate market will tighten from 2016
Stocks and prices
Prices have yet to bottom as stocks negate tightening fundamentals

Statistical appendix

Note: Product cover images may vary from those shown
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