Nonferrous Metals Price Forecast for 2016

By Susan Avery

February 29, 2016 at 6:34 AM

Analysts who watch the market for aluminum, copper, lead, nickel, tin and zinc see prices hitting bottom and say procurement professionals considering purchasing metals may want to buy now—or they could wait. Nonferrous metals prices are heading up, but they should remain favorable for metals buyers throughout the year. 

John_Mothersole.jpg“We expect to see stronger pricing beginning to assert itself especially in the second half of this 2016,” John Mothersole, Director of Research at IHS Pricing and Purchasing Service, tells My Purchasing Center. The key, he says, “may be in oil markets.” 

As nonferrous metals buyers know, the oil market is just one price indicator to watch. Equally important are emerging economies (especially China), U.S. monetary policy and equity markets.  

Mothersole keeps an eye on all three and says he isn’t surprised at the price volatility of the first months of 2016 caused by the Federal Reserve’s long anticipated interest rate hike in December and the absence of physical buyers in the market due to the extended holiday season—Christmas to the  Chinese New Year. After this period, he says, buyers will come back into the market “providing a degree of support for prices,” he says.  

“If we see stabilization in global GDP growth and, more important, for commodities, a stabilization in manufacturing activity in the big emerging markets such as China, we will start to see physical support for these commodity markets in the second quarter and second half of the year,” Mothersole says. “This points to not necessarily a strong price rebound, but at least a floor under prices and, in some cases, a bit of a bounce.”

Specifically, aluminum, lead, nickel and zinc prices have all hit bottom, Mothersole says in the interview which took place in February. What’s more, each of these metals is selling at cost, which means that prices have no where to go but up. And, oil prices, he explains, is the bellwether. Once oil begins to firm, the metals should begin to follow suit.  

“We’ve been advising our clients that now is a good time to lock in price depending on the market,” Mothersole says. “Prices today look very attractive so, as a general strategy, buying forward is probably advantageous.”  

That said, the turn in prices is likely to take place over an extended period with the rebound not  particularly strong in 2016, so spot buying doesn’t entail much risk. Likewise, taking a wait-and-see approach may not be a bad idea either. 

Nonferrous Metal Price Forecast: Bearish

Lisa Reisman, Founder and Executive Editor of MetalMiner, the digital multimedia resource for metal-buying organizations tells My Purchasing Center that while she’s bearish on nonferrous metals this year, she expects price volatility to continue in 2016.

 lisa-reisman-new-headshot.jpgIn addition to China and oil, MetalMiner also watches exchange rates for trends that may indicate a change in prices. Reisman’s team tracks these macro economic factors by looking for trends in a shift, that is, either higher highs or lower lows, of say, oil prices. If such trends occur, she says, “We would start to urge our readers, who are industrial buyers, to start paying attention to what’s happening.” 

And while nonferrous metal markets tend to share some similarities, there are also differences, she says, explaining that MetalMiner looks at prices on an annual basis and speaks the talk of traders, referring to resistance, the highest price a metal will go in a year. At that point, Reisman says metal buyers may want to change behavior. 

Take tin, for instance. MetalMiner figures $16,500 per metric ton as a high and $11,800 as a low, with an average of $12,760. In February, Reisman pointed out that tin was trading at $15,730, not above its resistance level, but higher than expected. 

“I wouldn’t say tin is pushing up against resistance, but it’s getting close,” she says. “The question is why. Tin is in a better supply and demand balance than other metals, and that could be the reason. The world is awash with aluminum and copper. It’s not the case for tin.”

Reisman’s recommendations for nonferrous buyers depend on how companies purchase metal—with a long-term contract (using hedging practices) or on the spot market. “Basically, in a market with falling macro economic indicators, buyers want to purchase what they need when they need it because prices are falling,” she says. “That’s largely what we instruct people to do on a monthly basis. “ 

However, when buyers see numbers bump up against the resistance level, then it might be time to take price risks off the table, Reisman says. “That’s when they might want to buy forward. Tin is one.” 

In addition, buyers also need to pay attention to lead and zinc in the short term, she says. Long term, the market is still bearish and buyers shouldn’t be doing a lot of big forward buys at this point.

Reisman’s recommendations for nonferrous depend on how companies think of their purchases: long-term contract (more of a hedging organization) or spot buy. “Basically, in a macro falling market buyers want to purchase what they need when they need it because prices are falling, and that’s largely what we instruct people to do on a monthly basis. “ 

However, when buyers see numbers bump up against the resistance level, then it might be time to take price risks off the table, Reisman says. “That’s when they might want to buy forward. Tin is one.” 

Short-term, she says, buyers need to pay attention to lead, zinc and tin. Long term, the market is still bearish and buyers shouldn’t be doing a lot of big forward buys at this point.

Here’s a look at what analysts are saying about specific nonferrous metal markets: 

Aluminum. At IHS Pricing and Purchasing, Mothersole sees prices below cost and therefore unsustainable. “By our estimates, industry operating costs are about $1,750 a metric ton on an LME (London Metal Exchange) pricing basis,” he says. “Now, even with premiums, prices are $100 or $150 a metric ton below that level.” If his figuring is correct, the industry is under stress which in seen in Alcoa’s decision to shut U.S. capacity in November. Other regions where producers have shut capacity include South America and Australia. Mothersole says China is key to the forecast for aluminum. Producers there need to exercise discipline for a sustained price increase to occur. At the same time, the industry has more than enough inventory, which means prices could stay at current levels until well into 2017. 

Copper. According to IHS Pricing and Purchasing, copper prices are above cost and therefore still have some downside potential. At the same time, inventories are relatively low and buyers could see a “mild deficit condition” occurring this year which could support a price bounce. However, Mothersole says analysts are divided on their forecasts, with a sizable minority still showing weak prices. “If manufacturing activity stabilizes in China, we will see an end to a destocking cycle that should help make apparent consumption positive in 2016,” he adds. “That combined with a cut in production—600,000 metric tons of mine production went off line in the past 12-18 months—sets up the market for a modest price increase, especially in the second half of the year.”

Nickel. Like aluminum, nickel prices have only one way to go and that’s up. By IHS estimates, prices are well below cost. LME prices are at about $8,500 a metric ton. Operating costs are between $13,000 and $13,500 a metric ton. “Even if we use the lower end of this range, price is still well below cost on an average cost operating basis,” Mothersole says. “It’s a dramatic number.” As such, an estimated 70% of global capacity is unprofitable, a situation that’s not sustainable. Already, there are signs that prices are bouncing around bottom. By the end of the year, that $8,500 figure could be up to $11,000 or $12,000, he says, and even with this 20% increase, the industry will still be operating below cost. “It’s not sustainable. Therefore our explicit assumption is that additional production will come off line and setting prices higher later in the year.”

Tin. MetalMiner’s Reisman says tin is probably the most surprising of the nonferrous metals, marked by more volatility. “Tin is close to breaking a higher high, but we don’t see macro conditions explaining behavior,” she says. “Tin will probably come down because we don’t see any news that tin is in tight supply and world demand is off the charts.”

Zinc. Inventories are not necessarily high or low, but analysts have forecast a deficit for some time, Mothersole at IHS says. “We’ve seen a move in prices over the past month or so, which we think is a harbinger of further pricing strength.” In February, prices were above $1,600 a metric ton and could move as high as $2,000 by the end of the year.

Also see at My Purchasing Center the articles:  Steel Price Forecast for 2016 and Nonferrous Metals Price Forecast for 2015

Tags: purchasing Procurement commodities Nonferrous metals Copper Nickel sourcing price forecast buyers aluminum zinc tin
Category: News Article

Susan Avery


Susan Avery is Editor-in-Chief at My Purchasing Center. She writes articles, blogs and white papers and manages and creates other content for the online procurement and supply management publication. She produces and moderates roundtable discussions, podcasts, webcasts and video interviews. Susan has 30 years experience covering procurement and supply management for Purchasing magazine and 

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