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World Commodity Forecasts Industrial Raw Materials

  • ID: 2101443
  • May 2016
  • Region: Global
  • 120 Pages
  • The Economist Intelligence Unit
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After plunging at the start of the year-alongside oil and equities worldwide-the prices of most industrial commodities have been rising for most of 2016. In April spot prices for zinc were up by 19% since the beginning of February, tin by 17%, copper by 11%, aluminium and nickel by 8% and crude oil by almost one-third. However, natural gas prices were down by 23% in the same period and lead was flat. Despite these variations, however, the general picture remains poor: these price increases have come after multi-year lows, there is no guarantee that they will be sustained 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, 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
We have become less confident about the economic outlook for China
EU aluminium demand gets off to a slow start in 2016
US aluminium demand growth remains positive, despite slowing in late 2015
Japan's aluminium usage will barely grow in 2016-17
Supply
Production in the GCC should start to plateau as plants operate at capacity
Hindalco and Vedanta push Indian output to new highs
Chinese smelter closures become a reality, but for how long?
Currency weakness has helped non-US producers weather price falls
Stocks and prices
LME aluminium prices falter as market imbalance comes to the fore again
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
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
Loose monetary policy will fail to stimulate copper usage in 2016-17
US copper demand will moderate in 2016, after increasing by 1.4% in 2015
Supply
Peru set to remain the second-largest global copper mining country in 2016
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
Average treatment charges fall, tightening concentrate availability
Chinese smelters agree to cut output by 350,000 tonnes in 2016
Stocks and prices
Chinese bonded warehouse stocks have increased amid high stocks
Falling LME stocks offset by sharp build in SHFE inventories
2017 price forecast lowered amid further revisions to demand projections

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 in India
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
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
A freeze would not affect our forecast for rising OPEC output
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
Jewellery consumption will grow modestly in China and India
We now expect ETFs to be net buyers of gold in 2016-17
Net retail investment activity will be subdued
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 rising 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 little supply in 2016-17
Stocks and prices
Gold has regained some appeal as a safe-haven asset, pushing up prices

Lead
Demand
The outlook for lead-consuming sectors in China is mixed
A small rebound in consumption is possible, despite some challenges
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
Chinese refined lead production fell by 5.3% year on year in January-February
Some capacity additions are planned outside of China
Concentrate supplies will tighten from 2016 as closures are felt
Stocks and prices
LME/SHFE stocks are down by 11.4% so far in 2016
Price weakness will persist in 2016 owing to weaker fundamental backdrop

Liquefied natural gas
Demand
Japan's government appears to be favouring coal over LNG
South Korea's LNG imports are expected to slip again in 2016
Reform of wholesale pricing should boost China's LNG imports in 2016-17
The Indian government is encouraging gas imports
South-east Asia is becoming an important LNG market
The Middle East is expected to grow its market share
The EU will absorb much 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
Colombia is no longer going to be a LNG exporter
The US will be a significant LNG exporter by 2018
Yamal LNG will only become fully operational by 2018
Angola LNG will restart in 2016
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
Gazprom trims spending on China pipeline, but is resolute on Nord Stream-2
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 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's economy and vehicle production are struggling
"Other Asia" demand is being boosted by stockpiling in producing countries
Steady growth in vehicle production in developed markets will support NR use
Low oil prices are enhancing the appeal of SR
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
Weakness in the stainless steel sector will weigh on China's nickel demand
Chinese steelmakers are turning to alternatives for nickel pig iron
Nickel use will grow in most advanced economies, albeit slowly
Taiwan is reinforcing its position as a leading consumer of nickel
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
Restructuring is likely to be postponed amid credit infusion
US steel output will see a rebound in 2016
NAFTA governments are targeting steel dumping
The UK steel is fighting for survival
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 spike in March
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 and production of tinplate slowed in 2015
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
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 will grow by a modest 4% a year in 2016-17
Zinc use from galvanised steel faces challenges from overcapacity
GDP forecasts for commodity exporting emerging markets have been cut again
EU passenger-vehicle sales grew by 10% year on year in January-February
US zinc consumption could benefit as galvanised steel imports slow
Supply
EU refined zinc production growth will continue to slow in 2016-17
Projects in India and South Korea boost output growth in Asia
Projects in Latin America will boost local, not global, production in 2017
Tighter ore availability is becoming evident
2016 benchmark TC deals set well below the 2015 record
Stocks and prices
Investors and consumers take cautious approach to recent price gains

Statistical appendix

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