Which Base Metals Still Have Stories in Fundamental? SMM Reports

SHANGHAI, Mar. 27 (SMM) – Many commodities entered a bull market in 2016 thanks to recovery in China, US and Europe, China’s supply-side reform and inflows of capital into the commodity market. Which base metals are still promising in 2017?

At the 2017 SMM Copper & Aluminum Summit, many industry insiders gave their takes in an interview undertaken by Fu Peng, fund manager of Hong Kong Clear Cover International Asset Management Company Limited.

A Fundamental Story

Zinc has some stories. For most base metals, supply is still in surplus. But zinc will be the first to recover thanks to falling supplies and stable demand, said Zhu Yi from Bloomberg Intelligence.

Primary aluminum and crude steel witnessed overcapacity, but supplies of high-end high-strength steel and aluminum alloy are still in shortages in China. Despite oversupply of primary aluminum, high-end aluminum alloy used in light weight vehicle sheet still falls short of demand. Increasing high-end product capacity whilst eliminating outdated capacity is in line with China’s policy.

Will Zinc Ingot Supply be in Shortage?

Zinc is not in deficit at present but will see shortages in the second half of this year, said Zhu. Zinc smelters shut down as zinc concentrate TCs are falling, and this will reduce zinc capacity. So, zinc ingot supply is expected to fall short of demand. The zinc industry is suffering from cash flow problem. Some smelters will restart but will not contribute to output any time soon. 

Actually, many other nonferrous metals are in similar situation, such as copper. News of expected zinc concentrate shortages have been circulating in the market from last year. The concentrate supply story is expected to positively affect zinc.

Which Commodities Also Promising This Year?

Crude oil is bullish because of output cut by OPEC countries and continuously falling output at non-OPEC countries, said Tracy Liao from Citi Research Commodities Strategy. Crude oil will affect commodity market. As raw material for commodities, crude oil will push up cost curves of commodities. Meanwhile, crude oil accounts for a high proportion in investors’ investment channels. So capital will flow to commodities if crude oil market performs well. Aside from oil, capital will also flow to other commodities.

Besides, copper is also optimistic. Gold is neutral, and will be supported by upward pressure for the US dollar and uncertainties over other regions in the world. Nickel and aluminum are bearish, while zinc is cautiously bullish.

Dong Hao, Fund Manager from Kai Feng Investment Management Co. reckons that deleverage will continue this year. An interest rate hike will be likely and may slow economic recovery.  

Electric cable takes a lion’s share in copper consumption, which is a state-dominant product. Considering present investment plan, PPI and copper unit price, investment in cable may take longs by the throat this year.

Why aluminum is optimistic? China has reiterated supply-side reform on aluminum given oversupply, and may slow commissioning of some new capacities. Meanwhile, overseas aluminum consumption is very strong. Aluminum also has cost support, including prebaked anode and alumina.

Rebar will also benefit from supply-side reform.

Senior market analyst Xie Meirong is bullish toward billet. Profit will remain high, which will be higher than rebar. Iron ore may weaken, though.

Nickel is bearish. Given China’s macroeconomic policy, nickel may fall sharply if Indonesia loosens export policy during April-May.

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