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World Commodity Forecasts Industrial Raw Materials

  • ID: 2101443
  • September 2016
  • Region: Global
  • 107 Pages
  • The Economist Intelligence Unit
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After a dismal few years, metals prices have been on a broadly upward trend so far in 2016; July 1st was the first day of the year for which the London Metal Exchange cash price of the six base metals that The Economist Intelligence Unit tracks exceeded their end-2015 level. China's efforts to stabilise the economy after the panic in January, coupled with a partial rally in oil prices and a slightly softer US dollar, have provided support. Most metals maintained momentum throughout July, benefiting from investors' renewed appetite for risky assets as yields in the developed world remain depressed.

Although we expect this trend to continue in the remainder of 2016 and in 2017-18, we remain cautious about the global economic outlook and, in turn, prospects for commodity markets. We expect global GDP growth to quicken only slightly in 2017, to 2.4%, from 2.1% in 2016. Sub-par economic activity in developed economies, partly as a result of the UK's vote to leave the EU, will weigh on global growth. Anxiety about the ability of the Chinese government to cool its economy at a steady pace also remains an issue.

Furthermore, the market balance across many markets is not yet supportive of prices. Although some markets are beginning to tighten, many are still plagued by oversupply, as production capacity-bolstered by a surge in investment during a decade-long boom in prices in the 2000s-still exceeds demand, which has weakened in line with China's economic slowdown. Leading producers of raw materials-especially firms at the lower end of the industry cost curve-remain focused on preserving market share. Meanwhile, in China, the biggest supplier of many commodities, cuts in output remain sensitive, as they risk undermining jobs and revenue.

Note: Product cover images may vary from those shown
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World Commodity Forecasts Industrial Raw Materials

Economist Intelligence Unit commodity price index
Improving sentiment is sustaining momentum in raw materials prices
Metals producers are beginning to respond to persistently low prices
The outlook for cotton and rubber prices is subdued
High stocks will cap the rise in oil prices in late 2016 and 2017

Aluminium
Demand
Chinese aluminium demand will be hit by slower investment in 2018
Chinese fabricators show strong production gains in 2016
India's aluminium usage will boom in 2016-18
EU demand will slow in 2017 in line with weaker economic growth
Direct consumption of aluminium in the UK is limited
Demand for aluminium in the US has been buoyant in early 2016
Supply
Chinese smelter reactivation is makings slower progress than we expected
Output outside of China is exceeding expectations
Production (excluding China) will rise above 2008 levels from 2016
Production in the GCC should start to plateau as plants operate at capacity
Hindalco and Vedanta push Indian output to new highs
US restarts in 2017 are unlikely given the price outlook
Stocks and prices
Overcapacity will hurt the aluminium sector in 2106-17 and in 2018
A slowly rising trend is under way in aluminium prices

Coal
Demand
China's coal consumption is to continue to decline in 2016-18
US coal consumption continues to experience a severe downturn
Coal use will fall in the EU in 2016-18
India's coal consumption will remain robust
Supply
China's output will fall amid low prices, capacity cuts and soft demand
US production is on a downward trajectory
The Indian government will struggle to double production by 2020
Australia will achieve a marginal increase in output in the near term
Stocks and prices
Average prices will continue to fall in 2016 before picking up in 2017

Copper
Demand
Robust Chinese demand growth in 2016 masks underlying weaknesses
China's copper demand will keep rising in 2017-18, albeit at a slower rate
India will fuel Asian copper consumption
European copper consumption is rising quickly
Supply
Peru is set to remain the second-largest global copper mining country in 2016
Mining faces challenges in Chile, the biggest copper-mining country
Risk of further production cuts recedes as cost-cutting improves margins
Policy uncertainty weighs on Indonesia's copper sector
Treatment charges face upside pressure as mine production is growing strongly
Contrary to earlier declarations, Chinese smelters are not showing much restraint
Stocks and prices
Chinese stocks rise on high imports and weak arbitrage rates
Combined LME and SHFE stock levels have fallen slightly so far in 2016
Copper prices are on a modest upward trend, but downside risks persist

Cotton
Demand
China's falling competitiveness is weighing on consumption
Despite textile-sector reforms, India's consumption growth will be modest
A power deficit and high operating costs hinder growth in Pakistan
Consumption in Bangladesh will grow, regardless of poor safety standards
Vietnam's consumption is set to continue to rise quickly
Supply
China's output will drop as subsidies are trimmed and production costs rise
More normal weather conditions will support modest output growth in India
Favourable growing conditions will support higher US output in 2016/17
Pakistan's production is set to rise in 2016/17, from a 17-year low in 2015/16
High input costs and weak support for farmers weigh on Brazil's output
Australia will see output leap in 2016/17
Stocks and prices
Chinese import restrictions will be negative for prices
Auction sales in China will weigh on prices
High stocks and weak demand growth will limit price growth

Crude oil
Demand
US oil consumption growth will decelerate further in 2017
Brexit uncertainty will weigh on European oil demand
China's demand growth will edge down
Other emerging markets will not make up for China's slower demand growth
Supply
Outside Nigeria, output is resuming after unplanned outages in early 2016
We continue to forecast a rise in OPEC output
US production is proving more resilient than previously thought
Russian producers hope to delay what seems an inevitable decline until 2018
Stocks and prices
High stocks will cap the rise in oil prices in late 2016 and 2017

Gold
Demand
Net retail investment will pick up
Higher gold prices will take their toll on gold jewellery purchases in 2016-17
Industrial gold is less competitive than alternatives
A few central banks continue to accumulate gold
Supply
Chinese production will add to global supply in the short term
Australia's production looks set to continue to rise in 2016-18
US-dollar strength will undermine US-based mines' profits
South Africa's gold output will continue to slip
Higher prices will spur recycling efforts in 2016-17
Producer hedging will fall in 2016-17, before rising in 2018
Stocks and prices
Brexit vote has significant impact on gold price forecast

Lead
Demand
Trends in China's car sales remain supportive of lead demand
China consumption is overshadowed by persistent destocking in the short term
Japan's lead demand will stabilise in 2016-18
Europe's car sales rose by a strong 9.4% year on year in January-June
Strong car sales in the US may not boost lead consumption immediately
Supply
Chinese refined lead production fell by 2.8% year on year in January-June
Lead-smelting capacity additions are planned outside of China
Global mine output dropped by 5% in January-May owing to closures
Stocks and prices
LME and SHFE stocks are up so far in 2016
Lead prices will rise in 2017-18 as markets tighten

Liquefied natural gas
Demand
Japan's LNG demand appears to be in long-term decline
Japan is seeking to become a hub for flexible LNG trading
South Korea's imports are likely to continue to fall, despite new energy plan
Reform of wholesale pricing is a factor boosting China's LNG uptake
India's LNG demand is price sensitive
Egypt is an increasingly important market
The EU will absorb much of the new supply in 2016-18
Supply
Qatar is having to adapt to greater competition in the market
We forecast that Australia's LNG exports will reach 65m tonnes in 2018
Asian producers are lifting output
The US will be a significant LNG exporter by 2018
Angola LNG will restart in 2016 and Algeria is ramping up output
Prices
Producers will be forced into greater flexibility in their contracts

Natural gas
Demand
US demand will increase in 2017-18, after slipping in 2016
The US presidential election will have little impact on use in 2017-18
Europe's gas demand will grow at a modest rate, supported by low prices
Russian consumption will be limited by the domestic economic performance
Russia consolidates European market share
China seeks to stimulate demand recovery with lower city-gate prices
While limited, the restart of nuclear power will constrain gas usage in Japan
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 stock levels

Natural rubber
Demand
China's NR usage in 2016 is off to an encouraging start
India's rubber consumption should revive, but risks are to the downside
Other Asia consumption is being boosted by stockpiling
Usage looks set to fall sharply in North America
EU consumption growth is likely to slow following the UK's vote to leave the EU
Low oil prices will enhance the appeal of SR in 2016
Supply
Thailand's natural rubber output is likely to dip this year
Indonesia is expanding planted area
Growth in Vietnam's production will slow
Malaysian production fell sharply in the first half of 2016
India's production may pick up in 2017, encouraged by higher prices
Stocks and prices
A more durable rally in prices will take hold from the fourth quarter of 2016

Nickel
Demand
China's nickel demand growth will slow in 2017-18
China's nickel users are moving to alternatives to nickel ores
Nickel use will grow in most advanced economies, albeit slowly
Supply
Environmental policies are constraining nickel mining in the Philippines
The government in New Caledonia is stepping in to support the nickel sector
Indonesia's policy heightens uncertainty for miners and refiners
China's nickel producers face myriad challenges
Russia's refined nickel output growth will rebound in 2017-18
Stocks and prices
Market tightening will push up prices sharply in 2017

Steel
Demand
Credit boost provides short-term support for Chinese steel demand
US automobile sales and construction will support North American demand
Brexit may not have a strong immediate impact
Other Asia is struggling in 2016
Supply
Restructuring is likely to be postponed owing to credit infusion
US steel output will see a rebound in 2016
NAFTA governments are targeting steel dumping
The UK steel industry is fighting for survival
The EU is stepping up anti-dumping measures
India's steel production is struggling, despite import restrictions
Iron ore prices will ease after surging in the second quarter
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%
The rally in prices has lost steam and we expect further softening later in 2016

Tin
Demand
Tin consumption has been mixed so far in 2016
Expanding use of consumer electronics will support tin demand in 2016-17
The chemicals sector is expected to add to tin demand, unlike tinplate
China's tin demand growth, although slowing, looks set to continue
European tin demand will return to slow growth in 2017
US tin demand is in long-term decline
Long-term prospects for Japan's tin consumption look limited
Supply
Rapidly rising mine output from Myanmar is flowing into China
Regulations and resource depletion are undermining Indonesia's tin sector
There are doubts about Indonesia's tin mine output potential in the long term
New mines and expansions are expected to add only a limited amount to output
Stocks and prices
Tin prices will rebound in 2016-17 amid gradual market tightening

Zinc
Demand
China's zinc demand will grow by 3.4% a year in 2017-18
Overcapacity in the steel sector will weigh on Chinese zinc use
Commodity-exporting emerging markets will grow slowly in 2016-18
EU passenger-vehicle sales grew by 9.4% year on year in January-June
Destocking by steelmakers is lowering growth in apparent zinc us in the US
Supply
Chinese zinc output will slow as smelters run down concentrate stocks
Output will fall in most regions in 2016, with South Korea a notable exception
Tighter ore availability is becoming evident
Benchmark TC deals in 2016 are set well below the 2015 record
Stocks and prices
LME and SHFE stocks are displaying diverging trends
Prices will rise more strongly in 2016-18 as wider deficits are forecast

Statistical appendix

Note: Product cover images may vary from those shown
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Note: Product cover images may vary from those shown

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