JOHANNESBURG (miningweekly.com) – Still-low metal prices will stabilise this year, edging gradually higher thereafter, as dollar strength and strong production growth begins to wane and provide a base to metal prices, analysis firm BMI Research said in its Commodities Outlook report on Tuesday.

It added that it did not expect a strong recovery in minerals and metals prices over the five-year period to 2020.

“Since 2012, miners have struggled to cope with falling mineral prices and declining revenues. However, after four years of severe decreases, prices have started to stabilise and edge higher,” it noted.

Over the first half of this year, metals prices rallied significantly owing to Chinese government stimulus measures, specifically in the country's housing sector, including relaxed property market restrictions, accelerated State infrastructure investment and easy credit.

The stimulus measures boosted demand for metals, particularly steel and iron-ore. Prices were also boosted through increasing metals futures speculation on both the AsiaClear and Dalian Commodity Exchange.

“Despite this, our 2016 core view remains that the rally in housing prices will not last. The continued surge in property prices for the fifteenth consecutive month in month-on-month terms, according to the 100-city new home price index, raises the risk of a significant downturn,” BMI Research stated.

“We believe additional stimulus measures could be a possibility as the [Chinese] government continues to pursue a 2016 gross domestic product growth target of between 6.5% and 7%.

“Potential stimulus measures include further monetary easing by cutting interest rates and reserve rates, or fiscal stimulus to boost growth. The measures would provide support for metal demand and prices for the remainder of the year, thus providing an upside risk to prices,” it stated.

While additional stimulus measures would result in prices rallying through the end of the year, the rally would set prices up for a relapse in 2017, after the stimulus effects started to wane.

The easing of stimulus measures in 2017 and the severe correction in China's property market would exert significant downward pressure on metal prices. While the Chinese government is already targeting measures to cool the residential property market, this does not guarantee that a severe downturn can be successfully avoided.

In the event of a severe relapse in the country's real estate market, the sudden loss of demand would push the metals market back into surplus.

Additional stimulus measures would limit government-led consolidation and support domestic production growth over the coming quarters. Also, additional stimulus measures and resulting higher metal and coal prices would reduce natural consolidation in the industry.

Chinese authorities have made repeated announcements since 2015 calling for a consolidation in some domestic mining and metals sectors. Despite the government's announcement that it intends to consolidate the sector to cut capacity in the globally oversupplied steel and aluminium sectors, production has continued to expand, supported by the price increases seen in the first half of the year.