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World Commodity Forecasts Industrial Raw Materials Product Image

World Commodity Forecasts Industrial Raw Materials

  • ID: 2101443
  • February 2015
  • Region: Global
  • 116 Pages
  • The Economist Intelligence Unit

The Economist Intelligence Unit now expects the outlook for Industrial Raw Material (IRM) prices to be less assured in 2015 than previously. The calamitous drop in oil prices from mid-2014 will have reverberations across the commodity complex broadly, but factors specific to individual markets will limit the upside in 2015. We now expect a rise in our IRM index of 3.1%, compared with 4.5% previously, representing only a muted recovery after a fall of 5.5% in 2014. Poor investor sentiment towards the sector and shrinking US-dollar liquidity (vital for dollar-denominated prices) will also sap demand away from commodities.

Base metal prices will rise by 5% in 2015 (compared with over 7% previously). Our expectation of slower price growth is largely down to weaker prospects in the global copper markets. Copper prices fell by over 10% in the first three weeks of 2015, as bearish sentiment on the outlook for industrial demand in China has dragged prices downwards, as did the ongoing fall in the oil price. A relatively tight physical position should help to prevent any sustained price rout, but there are major uncertainties about the volume of unreported stockpiles, particularly in China, that could unload onto the market.

In contrast, we expect demand for aluminium to pick up strongly in 2015. Outside China, physical stockpiles remain quite tight to access owing to warehousing queues, helping prices to firm up in the second half of 2014. Aluminium prices will recover strongly in 2015, consolidating above US$2,000/tonne, although, here too, large stockpiles could be unloaded into the market if any price rise is sustained.

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World Commodity Forecasts Industrial Raw Materials

Economist Intelligence Unit commodity price index
Industrial prices are still set for a rebound, but at a limited pace
Outlook for copper is less rosy
Agricultural industrial products have a poor price outlook
Fundamentals and financial dynamics are pushing down oil prices

Aluminium
Demand
Lower oil prices are expected to help boost demand in the US and China
European aluminium demand softens, but not as much as expected
Japanese slowdown gathers pace as recession hits
Brazilian aluminium slowing sharply as year-end approaches
Supply
Production outside China finally picks up
Klesch plans to restart 100,000 t/y of smelting capacity in the Netherlands
Russian output in 2014 will marginally exceed earlier guidance
The Brazilian election result will not affect aluminium supply
Stocks and prices
Large stockpiles are building in China
LME prices suffer from short, sharp sell off as immediate fears of tightness pass
Backwardation runs on, but stock withdrawal rate remains little changed
Price rises in 2015-16 will be limited by a heavy stock position

Coal
Demand
China has announced a public cap on CO2 emissions for the first time
US coal consumption will start to decline again in 2015
Coal use will fall in the EU in 2015-16
The EU has adopted binding emissions targets to 2030
India's coal consumption will remain robust
Bangladesh aims to change its energy mix radically in favour of coal
Supply
Demand is beginning to soften in China at the start of a long-term trend
US production is on a downward trajectory
The Indian government is aiming to double production by 2019
Falling prices likely to depress investment in Australia's coal industry
Indonesia is making new attempts to control exports and production
The weak rouble and conflict in Ukraine has pushed up Russian output
Colombia's output growth will moderate in 2015-16
Stocks and prices
Coal prices fall to new multi-year lows in November

Copper
Demand
China apparent consumption has been running at a strong pace in 2014
State Reserve Bureau will remain an active buyer of copper
China's production of copper semis recorded double-digit growth in 2014
Japan copper consumption growth will slow in 2015
Asian copper excluding China up by 4.3% year on year so far in 2014
European copper demand growth will slow to 1% in 2015
US copper demand to record small growth across 2015-16
Supply
Latin America mine production up as expansions fuel mine output growth
Disruptions mean that new mines are not reaching capacity on schedule
Freeport and Newmont are granted export licences and resume exports
Disruptions at smelters are also occurring
Re-tightening of the concentrate market is expected from 2017
China's refined copper output sets third consecutive all-time record in November
Chinese scrap imports improve, but remain down by 11.8% on 2013 levels
Stocks and prices
Estimate for China's SRB buying more than double, dip-buying to continue
LME stocks on cancelled warrant status remain down on year-earlier levels
Concerns about Chinese growth will weigh down on copper prices

Cotton
Demand
China will dramatically slash import levels
Government will support investment in India's textile sector
Pakistan's textile sector is squeezed by higher raw cotton prices
Consumption in Bangladesh will grow, regardless of poor safety standards
Dependency on slow-growing EU will weigh on consumption growth in Turkey
Supply
Poor weather conditions weigh on China's cotton output
India is poised for large increase in planted area
The US is poised to deliver a huge crop
A large output is expected in Pakistan, supported by government subsidies
Production will slide in Brazil as weak prices affect planting decisions
Dry weather in Australia's planting season prompts a downgrade
Stocks and prices
Large harvests and stocks will put downward pressure on prices

Crude oil
Demand
Low oil prices making subsidy reform easier to swallow
China raises taxes on fuels to combat pollution
US is likely to see consumption rise again in 2015
Some consumers will miss out on the benefits of lower oil prices
Supply
OPEC output will rise again in 2015-16 but some declines are expected
Lower prices will not mean falling US production
Russia's oil sector to endure low prices for now
Higher-cost producers are still expected to expand output
Stocks and prices
Heightened price volatility will persist into 2015

Gold
Demand
Funds have already moved out of gold, so ETF exodus is now less likely
Uncertainty about prices will weaken retail investment demand
China's jewellery consumption will return to trend growth in 2015-16
Changes to import policy will support India's demand growth
The switch to alternatives to industrial gold is accelerating
Supply
Depressed prices will hit producers that face higher costs
After a strong 2014, production in Russia and Australia will fall back
US mines will keep cutting back output amid low prices
Canada will see rising output in 2015-16
Chinese production will also continue to add to global supply
Scrap sales will stabilise along with prices in 2015-16
Central banks will continue to buy gold to diversify their reserve holdings
Producer hedging will not be a significant source of supply in 2015-16
Stocks and prices
Prices are set to remain subdued in 2015, given the macro environment

Lead
Demand
China's domestic market remained in slight deficit in January-October
Robust Chinese passenger vehicle production supports lead demand
Demand will benefit from robust battery production growth
Japanese lead demand will stabilise in 2015-16
US vehicle sales increased by 5.4% year on year in the first 11 months of 2014
Supply
China's lead concentrate imports up by 21% on January-November 2013
Total smelting capacity is expected to have risen strongly in 2014
Global mine production (ex-China) saw little growth in 2014
Restarted mine operations are beginning to feed into the market
Stocks and prices
Prices will rise in 2015-16 as the deficit widens

Liquefied natural gas
Demand
Nuclear restarts hang over Japan's LNG demand
Economic improvement should mean higher Korean buying
China will continue absorb a greater proportion of LNG imports
Indian imports could get a boost from lower prices
New markets are emerging in South-east Asia
Despite weak gas demand, Europe will add new terminals in 2015-16
Supply
Qatar's production will be steady in 2015-16
New shipments are under way from Australia
Malaysia's share of the LNG market will shrink as it starts to import fuels
US will enter the market in a big way from 2016, changing its fundamentals
Algeria may be biting off more than it can chew with new export plans
A difficult operating environment makes Nigerian expansion unlikely
Papua New Guinea a rare instance of projects arriving ahead of schedule
Prices

Natural gas
Demand
Fall in oil prices will have indirect effects on natural gas market
US demand will pick up as coal shutdowns expand
Russian consumption will be affected by a poor domestic economic performance
Agreement with Russia ensures six months of supply for Ukraine
Europe's gas demand will improve on dismal 2014
China is continuing to develop its import supply routes
Switch back to some nuclear capacity will come at expense of Japan's gas use
Steady growth expected in consumption in key Middle East economies
Supply
A cutback in US oil production could spark gas production downgrades
Russian production will increase despite new sanctions
Shale exploration in Europe has so far been disappointing
Saudi Arabia is planning new capacity in natural gas
China is scaling back its shale ambitions
Stocks and prices
Healthy supplies will push down US prices in 2015

Natural rubber
Demand
Demand in China in 2015-16 will fail to match the strong growth of 2013-14
Indian consumption will accelerate in 2015 despite industry turmoil
Japanese consumption revised down following descent into recession
Spanish and Polish demand is pulling up the EU aggregate
North American consumption growth has returned in 2014
Supply
The Thai government is poised to conclude a big sale to China
Indonesian production will be stronger than previously expected in 2015-16
Malaysian production is struggling, but the outlook is better for 2015-16
Government steps in to support India's rubber farmers
Vietnamese production will remain tied to Chinese consumption
Stocks and prices
Prices will remain weak in 2015-16 as stocks hang over the market

Nickel
Demand
China's dominance of the nickel market will diminish owing to ore shortages
China's consumption will show signs of recovery in 2015-16
Like most major commodities, EU consumption of nickel will be slow
US consumption will grow in 2015-16 but will not match strong 2014 levels
Japanese demand is affected by higher tax rates
Smaller markets growing at a rapid pace help to bring up the overall market
Supply
Global mine output should recover in 2015 as new sites open
New Caledonia sees mixed results from major new mines
Philippines should benefit from Indonesia's export ban
Nickel companies are moving downstream in Indonesia
Downside risks remain for Australia and Canada
Russian output is unlikely to be affected by sanctions in the near term
Stocks and prices
A market deficit will help to boost prices in 2015-16

Steel
Demand
China's consumption will be at a much slower pace than historical levels
US automobile sales and construction will support North American demand
Performance in Europe will be weak as economic conditions remain fragile
Growth in "Other Asia" is likely to be anaemic
Lower energy prices should have little short-term impact on Gulf steel demand
Supply
China's steel production will drop to single-digit growth rates
US imports soar as domestic supplies are high by outages
Both the US and Canada are targeting steel dumping
EU output struggles in the second half of 2014
CIS steel output will recover slowly in 2015-16 after a tough 2014
Japan's steel exports will face tough competition
Better business confidence in India has failed to translate into higher output
Iron ore prices will stay in a low band in 2015-16
Coking coal production cutbacks will affect the market in 2015
Scrap prices have finally adjusted to lower iron ore and coal prices
Stocks and prices
Asia will continue to have the world's cheapest steel prices

Tin
Demand
Semiconductor shipments at record levels
Tin use in chemicals to overtake tinplate as second-largest market
Expanding use of consumer electronics will support tin demand in 2015-16
China will continue to shape outcomes in the global tin market
Japan's tin consumption is likely to be in long-term decline
After a rebound in 2014, tin demand growth in Europe will slow
Supply
China's tin mine output is probably running at full capacity
Myanmar has emerged as a major source of supplies to China
Output from Indonesia's largest producer is expected to be limited
Indonesia has introduced a number of controls over exports
Lower Indonesian tin exports have not caused shortage in world market
Brazil and Bolivia are adding to tin mining capacity
New tin mines are being brought on line in Australia and Africa
Stocks and prices
Tin prices will remain under pressure in 2015 before a rebound in 2016

Zinc
Demand
Consumption growth in China ran at a brisk double-digit pace in 2014
Zinc demand in the EU will rise across 2015-16 after a contraction in 2014
US zinc consumption growth will average 1.2% a year across 2015-16
Japan's zinc demand will continue to grow slowly
Supply
Chinese refined zinc production rose by 12.1% in January-October
EU refined zinc production posts 3.2% growth in January-October
Expansions bolster Asian output
We expect net mine capacity to have risen in 2014
Stocks and prices
China becomes net exporter of refined zinc as finance activity is curtailed
SHFE stocks continue to decline, down by 62% in 2014
LME zinc cash price to average US$2,162/tonne in 2014

Statistical appendix

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