Base Metals: Zinc & Lead to outperform peers - TDS

Analysts at TDS expect that certain metals will outperform their peers, as the respective markets tighten while scarce inventories along with firm demand precipitate deficits.

Key Quotes

“Zinc and lead are the top contenders for prime performance in the first half of the year, while copper, aluminium and nickel may benefit from positive correlations to the rallying complex. Their performance should lag that of their peers however, as their well supplied market and bloated inventories keep the physical market well supplied, capping rallies into next year.” 

“Strong global demand and voluntary mine production cuts are depleting zinc inventories, which should fall to near critical levels into 2019. That being said, signs have emerged that previously shuttered mines may resume production, which should provide the market with some metal after the second half of the year — although we do note that any increase in production should remain gradual, as to not disrupt the market.” 

“Although invisible stocks may provide the market with some shortterm relief, as extreme backwardations incentivize metal holders to place the metal on warrant, the market is still set to tighten considerably into the first half of the year. As a result, we expect prices to be supported higher to a quarterly average of $3,350/t. Zinc's sister metal, lead, should perform well for similar reasons.”

“At the same time, the recently “electrified” nickel demand expectations amid electric vehicle optimism have sent prices surging to levels not seen since 2015. But, with indications that supplies from the Philippines are returning — subject to government approval, as the mining commission has reportedly voted on lifting the ban on open-pit mining — and Indonesia increasing its export permit allowance, we expect that physical demand for the metal will remain well covered. Furthermore, a massive store of above ground inventories in warehouses totaling some 225 days of consumption will be another source of supply preventing a tightening in the nickel market.”

“And, while we join the market in our long-term optimism with regards to the electrification trend, the rising briquette stocks – which is the product type most suited for battery materials – seem to suggest that demand from EVs will not add any material pressure on market balances for a while yet.”