Base metal prices have experienced strength and increased volatility over the last month. A key catalyst for the move higher was the LME banning the delivery of new Russian-origin metal into its warehouses following sanctions imposed by the US and UK governments for Russia’s invasion of Ukraine. This move predominantly has implications for aluminium, nickel, and copper.
While the move does not significantly change supply fundamentals, it has led to uncertainty and volatility in the near term, prompting us to revise higher our second-quarter forecasts. However, we believe prices for aluminium and nickel risk a pullback once the market adapts to the new changes and realises the sanctions do not change the overall supply picture.
For nickel, we expect the global primary nickel market to remain in surplus for a third consecutive year in 2024, which should cap prices. For aluminium, higher prices and falling production costs could incentivise European smelters to restart idled capacity later this year, putting downward pressure on prices.
Copper prices have stood out over the last month, with LME copper breaking above $10,000/t for the first time in two years. Concerns over tightness in global mine supply and stronger demand from the green energy sector have boosted prices.
However, short-term indicators suggest that copper prices are due a downward correction. In China, copper inventories are at seasonally elevated levels, while import premiums for refined copper have fallen to zero, reflecting sluggish demand. In addition, while spot treatment charges have weakened significantly, there are no signs yet of Chinese smelters cutting operating rates.
External developments, specifically monetary policy, will also be important for metals’ price direction. If US Fed rate cut expectations continue to be pushed back (like we have seen for much of the year), it should provide some further headwinds to metal prices.
