https://www.miningweekly.com

BofAML rejigs commodity price deck as global economic shocks favour gold over base metals

BofAML sees increased market uncertainty favouring precious metals over the base metals pricing outlook

BofAML sees increased market uncertainty favouring precious metals over the base metals pricing outlook

8th July 2016

By: Henry Lazenby

Creamer Media Deputy Editor: North America

  

Font size: - +

TORONTO (miningweekly.com) – Bank of America Merrill Lynch (BofAML) has adjusted the price forecast for most mined commodities, citing increased market uncertainty favouring precious metals over the base metals pricing outlook.

So far this year, mined commodities have rallied sharply, reinforcing analysts’ view that fundamentals had started to stabilise. The recent upside was driven by a confluence of factors, including signs that the global economy strengthened, the banking group stated in its latest ‘Global Metals Weekly’ report, published on Thursday.

According to BofAML, its ‘business-cycle model’ had now transitioned from ‘downturn’ to the ‘recession’ and into the ‘recovery’ stage, which was usually the most bullish period for the metals.

The cyclical upswing was heavily influenced by a U-turn from China's government on incentives, after it implemented another round of monetary and fiscal stimulus after ruthlessly cracking down on the economy in 2014/15. This also had positive implications for apparent copper demand, which had expanded at a rate of just under 10% year-on-year so far in 2016.

However, BofAML expected that a slowdown in Chinese activity growth was likely and that expansion rates in individual sectors had already started rolling over from extremely high levels.

Against this generally benign outlook, uncertainty had increased of late as the UK's decision to leave the EU had thrown “a curveball” at the commodity space. For this reason, the group had downgraded some of the industrial metals, while gold was headed for $1 500/oz and silver could touch $30/oz.

Gold had on Wednesday hit a two-year high at $1 373.60/oz, having risen by about 28.24% since the start of the year. Silver had gained more than 43% year to date, and changed hands at $20.23/oz on Friday afternoon.

GOLDEN OPPORTUNITY
According to BofAML, the world had been lurching from crisis to crisis and it did not believe that the trend would end soon.

“The importance of that dynamic for precious metals is mirrored by the high correlation between potential US gross domestic product growth and gold quotations. Many of the underlying issues affecting the global economy are structural, with Brexit merely a symptom of the problems many countries are facing,” stated the BofAML global commodities research team.

BofAML had called a bottom in gold in February and the renewed insecurity Brexit brought had reinforced its view.

The group upgraded next year's gold price forecast by 11.3%, from $1 325/oz to $1 475/oz. For 2016, the bank expected gold to average 7.4% higher at $1 232/oz.

BofAML had also in April called a bottom in silver, based on supply and demand dynamics. It now expected that an overshoot of prices to $30/oz was possible. For 2017, BofAML expected prices to average 22% higher at $20.98/oz, compared with the previously expected $17.17/oz.

BASE METALS DIVERGENCE
According to BofAML analysts, the worst market woes for base metals were now over, however, it noted an emerging diversion between individual raw materials.

Zinc remained the base metal with the most bullish market balances, despite analysts being somewhat concerned that weaker Chinese refined imports could pressure prices lower in the near term.

The analysts lowered their price outlook for zinc by 1.5%, or $0.01/lb, to $0.90/lb in 2016, and maintained their 2017 outlook at an average price of $1.03/lb.

Meanwhile, despite the nickel inventory overhang remaining substantial, demand had been steady, with the added threat of temporary or permanent mine closures in the Philippines being able to potentially accelerate a market rebalancing.

According to BofAML, it now expected 2016 nickel prices to rise 0.2% over the previously forecast $4.20/lb, but revised its 2017 price levels downward by 2.3% to $4.76/lb.

While China's aluminium smelters had restarted production, output remained well below last year's peak levels, according to BofAML. Assuming that authorities would continue to tackle overcapacities, analysts believed the immediate downside was limited.

This prompted it to raise expected average aluminium prices for 2016 by 3.5% to $0.72/lb, and keep its forecast steady at $0.75/lb during 2017.

BofAML also noted that copper had been an underperformer so far this year, and that it was unlikely to change. Analysts were cautious into 2017 on risks that the global market would remain oversupplied.

The group downgraded its copper price prediction for 2016 by 1% to $2.19/lb, and down 2.6% in 2017, at an average of 2.10/lb.

BULK COMMODITIES
BofAML left its price outlook for spot iron-ore fines unchanged at about $48/t in 2016 and 2017. It argued that the global iron-ore market remained oversupplied as output rose, while current low prices helped rebalance the market.

It also noted that, in order to restore normality on the iron-ore market, production curtailments were essential. However, it forecast a surplus in the coming years.

The group further noted that thermal coal prices rallied strongly since March on rising crude oil quotations and Chinese production cuts, as higher oil prices pushed the global coal cost curve up by about $5/t. Large government-mandated production cuts in China also triggered a rise of imports.

BofAML saw coal prices rising further in the second half of the year on a temporary respite in seaborne import demand in Asia. Next year, however, it expected coal prices to fall yet again as seaborne demand contractions resumed.

It adjusted upwards its thermal coal price outlook by 17% to $55/t in 2016, from $47/t previously, and up 22.2% in 2017 at $55/t, from $45/t.

BofAML also saw negative sentiment towards exotic metals such as uranium, slashing its 2016 average price forecast 25.4% to $29.1/lb, from $39/lb previously, and for 2017, lowering expectations by 27.5% from $40/lb to $29/lb.

Edited by Samantha Herbst
Creamer Media Deputy Editor

Comments

Projects

Image of lithium ore
Bougouni lithium project, Mali – update
Updated 2 hours 42 minutes ago By: Sheila Barradas

Showroom

Booyco Electronics
Booyco Electronics

Booyco Electronics, South African pioneer of Proximity Detection Systems, offers safety solutions for underground and surface mining, quarrying,...

VISIT SHOWROOM 
Weir Minerals Africa and Middle East
Weir Minerals Africa and Middle East

Weir Minerals Europe, Middle East and Africa is a global supplier of excellent minerals solutions, including pumps, valves, hydrocyclones,...

VISIT SHOWROOM 

Latest Multimedia

sponsored by

Hyphen, Eva mine, ferrochrome price make headlines
Hyphen, Eva mine, ferrochrome price make headlines
27th March 2024
Resources Watch
Resources Watch
27th March 2024

Option 1 (equivalent of R125 a month):

Receive a weekly copy of Creamer Media's Engineering News & Mining Weekly magazine
(print copy for those in South Africa and e-magazine for those outside of South Africa)
Receive daily email newsletters
Access to full search results
Access archive of magazine back copies
Access to Projects in Progress
Access to ONE Research Report of your choice in PDF format

Option 2 (equivalent of R375 a month):

All benefits from Option 1
PLUS
Access to Creamer Media's Research Channel Africa for ALL Research Reports, in PDF format, on various industrial and mining sectors including Electricity; Water; Energy Transition; Hydrogen; Roads, Rail and Ports; Coal; Gold; Platinum; Battery Metals; etc.

Already a subscriber?

Forgotten your password?

MAGAZINE & ONLINE

SUBSCRIBE

RESEARCH CHANNEL AFRICA

SUBSCRIBE

CORPORATE PACKAGES

CLICK FOR A QUOTATION







sq:0.115 0.146s - 92pq - 2rq
Subscribe Now