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World Commodity Forecasts Industrial Raw Materials

  • ID: 2101443
  • April 2016
  • Region: Global
  • 118 Pages
  • The Economist Intelligence Unit
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After plunging at the start of the year-alongside oil and equities worldwide-the price of most industrial commodities rallied in late January and February. There was a notable divergence in the first half of March, with the price of some raw materials, such as aluminium, falling back rapidly, and that of other industrial commodities, including copper, making further gains. Despite these variations, however, the general picture remains dire: prices of most metals remain close to multi-year lows and our aggregate Industrial Raw Materials (IRM) price index has fallen by more than one-half since peaking in the first quarter of 2011.

Many commodity markets continue to be plagued by 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. 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.

On the demand side, China's READ MORE >

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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
We expect heightened volatility in oil prices to persist in the near term
The price of Brent will peak in mid-2018

Aluminium
Demand
EU aluminium usage will recover over the course of the year
Japan's aluminium usage will barely grow in 2016-17
US aluminium demand growth remains positive, despite slowing in late 2015
Chinese aluminum demand growth slows as the economy transitions
Supply
Output will remain strong in the EU and Saudi Arabia
Warrick and New Madrid smelters set for closure
Chinese smelter closures become a reality, but for how long?
Currency weakness has helped non-US producers weather price falls
Stocks and prices
LME prices have followed SHFE prices up, but the rally looks unsustainable
China's dominance is making many uneasy

Coal
Demand
We expect China's coal demand to decline further in 2016-17
China is in the early stages of a structural shift in energy usage
Stricter environmental regulations are detrimental to US coal demand
The fate of the Clean Power Plan is uncertain
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
Average annual prices will continue to fall in 2016, before picking up in 2017

Copper
Demand
Chinese finance-related demand will slow on less favourable interest rates
China's State Reserve Bureau responds to support domestic smelters
Chinese copper demand will expand by an average of 2.6% 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 by just 1.7% a year in 2016-17
US copper demand will moderate in 2016, after increasing by 6.7% in 2015
Supply
Peru became the second-largest global copper mining country in 2015
Global mine production growth will be hampered by disruptions
Further production cuts are on the cards amid persistently low prices
Indonesian copper exports could fall as the government demands capital
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 increased marginally
LME stock flows will remain volatile as consumers book lower-term shipments
We have cut our forecasts to reflect weaker economic growth expectations

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
Vietnam's consumption is set to continue to rise quickly
Supply
China's output will drop, despite generous subsidies to Xinjiang farmers
Pest outbreaks and below-average rainfall weigh on yields
Stable cotton prices will support output growth in the US in 2016/17
Floods and pest pressure will lead to a drop in Pakistan's production
Production will slide in Brazil as weak prices affect planting decisions
Australia will be one of few producers to see output rise in 2015/16
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
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
We expect heightened volatility in oil prices to persist in the near term
The price of Brent will peak in mid-2018

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 stagnating in 2015, Australia's production will edge up in 2016-17
US-dollar strength will undermine US-based mines' profits
Peru's gold output will 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
Gold prices have responded to "Brexit" fears

Lead
Demand
Chinese lead demand slumps by 18% in 2015, amid substantial destocking
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
Strong car sales in the US may not boost lead consumption immediately
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 and SHFE stocks rise as higher prices spur deliveries
Price weakness will persist in 2016 owing to weaker fundamental backdrop

Liquefied natural gas
Demand
Japan's LNG imports have peaked and are now in decline
We have cut our forecast of South Korea's LNG imports
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 much of the new supply in 2016-17
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 was made in February
Yamal LNG will only become fully operational by 2018
Iran has ambitious plans to enter the LNG market
Nigeria is seeking to expand market share
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
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
Gazprom trims spending on China pipeline, but is resolute on Nord Stream-2
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
Continued expansion of China's vehicle fleet will support NR usage in 2016-17
India's NR usage should revive, but risks are to the downside
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
Stockbuilding could give a lift to US NR usage this year
SR outlook will continue to affect NR demand
Supply
The Thai government has sanctioned stockpiling
Adverse weather could affect Indonesian output in 2016
Vietnam's production is expected to stabilise in 2016-17
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
Plan to withhold exports should support prices

Nickel
Demand
China's volatile apparent consumption in part reflects stock movements
Chinese steelmakers are turning for alternatives to nickel pig iron
Weakness in the stainless steel sector will weigh on China's nickel demand
Nickel use will grow in most advanced economies, albeit slowly
Supply
Investment in nickel mines in the Philippines is slow to materialise
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 fall in 2016
Rebound in Australian output is likely to be delayed until 2017
Stocks and prices
Having fallen to a six-year low, prices will begin to recover in 2016

Steel
Demand
Chinese demand will be under pressure in 2016-17, after falling in 2014-15
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
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
The EU is stepping up AD measures
CIS steel output will recover slowly in 2016-17 after a difficult 2014-15
India's steel production will grow fast, helped by import restrictions
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%
Prices bounce, but rally will be short-lived

Tin
Demand
Semiconductor shipments slowed in 2015, but other sectors performed well
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, while slowing, looks set to continue
European tin demand will return to slow 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
Usage will be hindered by anti-dumping measures on Chinese galvanised steel
The environment remains challenging in many emerging markets
EU zinc usage will be boosted by strong vehicle sales
US zinc consumption could benefit as galvanised steel imports slow
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
Tighter ore availability is becoming evident
Falling treatment charges reflect impact of output cuts on concentrate supply
Stocks and prices
Deflationary pressures and investor sentiment will keep prices low in 2016

Statistical appendix

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