Metals market watchers upbeat on 2023 price, demand prospects after sluggish start
Metals prices may claw back in 2023 as the US dollar weakens and the appetite for mergers and acquisitions in the metals space sharpens, according to producers’, analysts’ and economists’ views.
Surprises may occur, but the overall sentiment is positive, according to Jefferies International. UBS and ActivTrades meanwhile see geopolitical and energy risks, particularly in Europe, continuing to cloud a recessionary backdrop while China shows mixed demand recovery.
It will still be in vogue to be bullish copper, needed for all aspects of electrification, diversified miners including Eurasian Resources Group (ERG) and Vale agree. Metals in general are seen performing well as longer-term demand continues for energy transition materials.
“We believe the [metals and mining] sector in general is poised to materially outperform the broader equity markets once again,” said Jefferies analysts led by Chris LaFemina. “Chinese demand for base metals should stabilize in 1H23 [H1 2023] and improve as the year progresses, offsetting what is likely to be weaker demand in the US and Europe. Meanwhile, supply constraints are worsening and inventories are very low. We expect most commodity prices to end 2023 higher than where they are today. Mining shares should outperform once again. Copper miners are best.”
A weaker US dollar following successive Fed rate hikes will help buoy prices of dollar-denominated metals: ActivTrades senior analyst Ricardo Evangelista noted the greenback approached a six-month low during Dec. 22 trading.
A year to forget
2022 was both unpredictable and exceptional.
“2022 has seen most commodity prices sold off sharply – however, this was largely due to specific disruptive short-term price drivers, including COVID-19 lockdowns in China [which have recently loosened], monetary policy in the US, and the fallout from the energy crisis caused by the military conflict between Russia and Ukraine,” said Benedikt Sobotka, ERG’s CEO.
“We expect the impact of all these factors to resolve or ease off in 2023. Furthermore, we believe the market has overreacted and is at odds with actual state of most commodity markets. We anticipate that the demand structure for many commodities is undergoing a fundamental shift driven by the global net-zero transition.”
ERG expects copper next year to “turbocharge” back towards the $10,000/mt level exceeded after Russia’s Feb. 24 invasion of Ukraine sparked fears of market tightness. Copper prices went on to fall more than 25% between April and November even as inventories slumped 60%, on weaker economic indicators, said UBS analysts led by Daniel Major.
UBS forecasts an average price for “Dr Copper” – considered a barometer of economic activity and industrial production – at a more measured $6,600/mt in 2023, as “energy transition sectors will not be enough to offset slowing demand from traditional end use sectors,” amid a recessionary backdrop in Europe/US and mixed demand recovery in China. Still, “longterm fundamentals for copper look compelling and arguably better now than 6-9 months ago,” it said.
Vale is betting with its diggers. At this month’s Vale Day at the New York Stock Exchange it announced plans to boost copper output to 900,000 mt/year from 2030, from 260,000 mt this year, with nickel output to grow to above 300,000 mt/year from 2030, from around 175,000 mt/year at present, and to attract a strategic investment partner to boot.
The London Metal Exchange 3 months copper price closed at $8,399/mt Dec. 22, down $62.50/mt on day, and down 14% from the year’s start.
Russia still present
Russia, the target of many sanctions due to its war in Ukraine, is a substantial producer and exporter of copper and aluminum, as well as supplying some 15% of the world’s battery grade nickel.
Russian metals can, however, still be officially traded on the LME and stored in the exchange’s warehouses, according to a decision taken by the exchange and its members seeking to maintain market stability.
Despite the continuing presence of Russian metals on many markets, primary aluminum, copper, nickel and tin markets have continued in deficit this year, partly due to smelter cuts as energy prices soared, the World Bureau of Metals Statistics reported mid-December.
Following a weak H1 2023 as Chinese demand recovers, Jefferies forecasts some recovery in prices not only of copper but also of aluminum, zinc and iron ore later next year.
Not all roses
Uncertainties persist on how fast the metals-hungry energy transition may develop in the current economic climate.
S&P Global Commodity Insights’ Metals and Mining Research team expects lithium and cobalt prices to be pressured in coming months due to weakening plug-in electric vehicle sales and rising COVID-19 infections in China. Goldman Sachs and other analysts in recent weeks predicted substantial downwards correction in lithium as new projects come on stream worldwide in coming months or years: following a price-doubling this year for the vital ingredient for lithium-ion batteries.
Platts assessed lithium carbonate at $75,000/mt CIF North Asia Dec. 20, up 122% since the start of 2022.
What’s more, “there is more pronounced unease in the cobalt market, as the end of the PEV subsidy in China could potentially accelerate the shift away from cobalt-intensive NMC532 and NMC622 batteries,” S&P Global Commodity Insights’ analyst Alice Yu said in Dec. 20 report. High cobalt prices in recent years have led a shift away from relatively pricy NMC (nickel-manganese-cobalt) products.
Following a spate of depressed company share values earlier in 2022, the stage looks set for merger & acquisition opportunities.
In the week of Dec.19 alone, China approved China Baowu Steel Group Corp’s takeover of Sinosteel Corp. in a further consolidation of the Chinese steel sector, while miner BHP came a step closer to its proposed takeover of Australian copper and nickel mine developer OZ Minerals with the signing of a preliminary accord for what would be the company’s biggest acquisition in more than a decade.