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LME Asia Week 2017: Supply will tell the story

LME Asia Week 2017: Supply will tell the story
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Global metals demand forecasts remain healthy, so the deciding factor in the price momentum of particular metals in 2017 likely hinges on supply. That was the consensus of panelists at a session at LME (London Metal Exchange) Asia Week 2017, held in Hong Kong in May.

 

Zhu Yi of Bloomberg Market Intelligence said both capital inflows and supply-demand fundamentals are affecting base metal prices, but an era when a “huge inflow” of money was invested into commodities seems to have tapered off.

 

On the metals production supply side, Zhu commented that for several years China has talked about phasing out old capacity, but most often local and provincial governments block such actions to protect their GDP numbers. Things in 2017, she said, may finally be different, since emissions targets are being enforced more rigidly.

 

On the demand side, Zhu says she does not foresee a second wave or “super cycle” that can replicate China’s escalating demand growth pattern from the past 20 years. While India and other nations may experience upticks in demand, she said it will be “yesterday no more” in terms of a super cycle.

 

John Johnson, who works from China for London-based CRU International Limited, says the team of analysts at his firm also sees steady to slow-growing demand, so price volatility “differentiators are on the supply side.”

 

He provided CRU’s price forecasts for a basket of metals, ranked from “hot” to “freezing.” Metals that have supply-side mining issues, such as copper and zinc, are on the “hot” side, possibly rising by more than 15% in 2017 compared to 2016. Nickel, on the other hand, was closer to the “cool” side at 0% to 2% price growth, as more ore seems likely to be mined in Indonesia and the Philippines.

 

David Lilley of London-based RK Capital Management pointed to increased scrap recycling activity as a factor that can alter forecasts. Lilley says he had predicted the price of copper would rise more in late 2016 than it did, but a “significant release of copper scrap into the market” affected the supply side.

 

Lilley says he “underappreciated scrap’s effect on the market” in late 2016 and early 2017. However, as of mid-2017 he said the “scrap impulse has now reduced,” and the copper mining disruptions may begin to provide some upward momentum to the copper price.

 

Scrap supplies may also soon be a major factor in the steel sector, said panelists, since China’s generation of ferrous scrap is expected to grow significantly in the coming years. Bloomberg’s Zhu said there might be a “super cycle” in terms of scrap metal generation in China, which could cause China’s steel industry to move from its current 13% utilisation of scrap metal to rise to 20% or more.

 

CRU’s Johnson remarked that the steel sector in the United States relied on ferrous scrap for about 60% of its feedstock, and China’s steelmakers are likely to ramp up their usage as scrap generation increases within China’s borders. “We think increasingly scrap will be used in basic oxygen furnaces (BOFs) as a coolant.”

 

He also said many current holders of licenses to operate small scrap-fed steel induction furnaces in China are applying for licenses to operate larger scrap-fed electric arc furnace (EAF) mills. “We think [China’s ferrous scrap] will be used domestically and create a case for more EAF production,” said Johnson. “It may not happen for five years or more—it will take time.”

 

The LME Asia Week 2017 metal seminar was 10 May at the Hong Kong Convention and Exhibition Centre.

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Source: Recycling Today
LME Asia Week 2017: Supply will tell the story
<![CDATA[Global metals demand forecasts remain healthy, so the deciding factor in the price momentum of particular metals in 2017 likely hinges on supply. That was the consensus of panelists at a session at LME (London Metal Exchange) Asia Week 2017, held in Hong Kong in May.   Zhu Yi of Bloomberg Market Intelligence said both capital inflows and supply-demand fundamentals are affecting base metal prices, but an era when a “huge inflow” of money was invested into commodities seems to have tapered off.   On the metals production supply side, Zhu commented that for several years China has talked about phasing out old capacity, but most often local and provincial governments block such actions to protect their GDP numbers. Things in 2017, she said, may finally be different, since emissions targets are being enforced more rigidly.   On the demand side, Zhu says she does not foresee a second wave or “super cycle” that can replicate China’s escalating demand growth pattern from the past 20 years. While India and other nations may experience upticks in demand, she said it will be “yesterday no more” in terms of a super cycle.   John Johnson, who works from China for London-based CRU International Limited,…

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