A report by Wood Mackenzie, the global research analyst firm has listed out five things to watch out for in the metals market in 2019. The success of China’s economic reform programme will have a strong influence on the metals market this year. On balance, fundamentals have improved, but geo-political concerns continue to dog the market and whispers of economic slowdown cloud the horizon.
- Eyes on China
In the face of a significant slowdown in industrial production growth and a decline in manufacturing, Beijing policymakers are doing their best to stimulate an ailing economy. As these reforms take effect, steel demand should start to recover after a sharp deceleration in Q4 2018.
Copper will not fare as well, with the US-China trade war a drag on the market. Wood Mackenzie analysts expect total Chinese copper consumption growth to decelerate from 2% to 1.6% in 2019.
So far, the Chinese government has managed to prevent a hard landing for the construction sector through its stimulus programme. But it is debatable how long these reforms will last. We are betting China will pull yet another rabbit out of the hat, but 2019 is already looking like an uphill struggle.
Meanwhile, developments in resolving the US-China trade dispute will play a pivotal role in price direction in 2019. An early settlement to this issue will ease concerns over a sharp contraction in global economic growth. However, continued stalemate will exacerbate already fragile sentiment.
- Continued volatility for copper price; geo-political events cloud the market
Although the copper price experienced volatility in 2018, the outlook for the year ahead looks extremely positive. Copper’s supportive fundamentals should keep prices skewed to the upside, despite the prospect of softer demand growth.
However, geo-political events could overshadow the market. Whispers of economic slowdown are gaining traction across a few economies. The possibility of an escalating trade war between the USA and China, ongoing uncertainty around Brexit and concerns around the health of some of Europe’s economies may act as a drag on market growth.
- Iron ore prices hold – but how long will the good times last?
Iron ore started the year in surprisingly good shape. Prices are holding comfortably above $70/ tonne with little evidence of margin compression. Can this last?
Much depends on China, where the iron ore and steel industries are restructuring in response to increasingly stringent environmental controls. Several smaller mines have already had to close in the face of rising compliance costs, and we expect more closures in the year ahead.
While the Chinese market will stagnate and decline, India is a rising star. Although currently only a small player in the global iron ore market, Wood Mackenzie believes the growth in Indian iron ore imports in 2018 is the start of a long-term structural change that could ultimately lead to its complete withdrawal from the seaborne export market.
- Nickel: will new projects push the market into overcapacity?
The nickel market has experienced a change in fortunes. After years of low prices and under-investment, the main problem for 2018 was where to source the amount of nickel needed to drive the electric vehicle revolution. A surge in investment in new facilities appears to have solved this problem.
Smelter expansions in both Indonesia and China mean that nickel pig iron (NPI) production will expand to record levels this year. And the last quarter of 2018 saw the announcement of three new large scale high pressure acid leach (HPAL) projects. However, the market now risks going into oversupply with even more projects expected to be commissioned.
- Lead will go out of fashion as EVs become commonplace
While nickel will benefit from the rise of electric vehicles (EV), new battery technologies and tougher legislation are putting the brakes on lead demand. However, Wood Mackenzie doesn’t believe the humble lead car battery should be written off just yet.
EVs still use lead batteries. The critical difference is that they require smaller amounts of lead than regular internal combustion engine cars – reducing lead consumption, but not altogether eliminating it. As EVs become commonplace, 2019 could be a turning point for lead’s long-term prospects.