Energy and Mines World Congress: Scotiabank Metals Outlook

Transcription

1 Energy and Mines World Congress: Scotiabank Metals Outlook November 27, 217 Rory Johnston Commodity Economist Scotiabank Economics

2 A Tale of Two Growth Outlooks: World Picks Up Slack of Slowing China 5 4 G OECD & Related EM Countries Growing in Sync number of countries Contraction Slowing Growth Accelerating Growth 2% 15% 1% China's Receeding Credit Wave China Credit Impulse, 12mma y/y % China 7-City Avg House Price, y/y % 3 5% 2 % 1-5% f 18f Sources: Scotiabank Economics, OECD. -1% Oct-7 Apr-1 Oct-12 Apr-15 Oct-17 Sources: Scotiabank Economics, NBS, Bloomberg. 2

3 Base Metals & Bulks Parting Ways Industrial Metals Price Forecast 3 Iron Ore (LHS) 25 Aluminium (RHS) Nickel (RHS) 25 Zinc (RHS) 21 Copper (RHS) Gold (RHS) 2 17 Base Metals To Outperform Emptying mine investment pipeline running up against strong demand Differentiation happening on the supply side Zinc furthest along its cycle, followed by copper and nickel; aluminium a wild card Index Index f 22f Sources: Scotiabank Economics, Bloomberg Bulks Taking A Breather Bulk commodities like iron ore are particularly leveraged against Chinese construction activity, which is slowing in line with more restrictive lending policies. Supply coming off a period of high capacity growth in Australia and Brazil. 3

4 Base Metals Outperform but See Supply-Side Differentiation 5 History of Base Metals Prices Copper (LHS) 25 4 Zinc (LHS) 2 Aluminium (LHS) 3 Nickel (RHS) USD/lb USD/lb '92 '97 '2 '7 '12 '17 Source: Scotiabank Economics, LME, Bloomberg. 4

5 Copper: Red Metal s Time Will Come, but Rally is Too Far Too Fast 3.5 Scotiabank Copper Price Outlook Scotiabank Forecast 1.75 Forward Curve LME Cash Copper Price USD/lb 1.5 '15 '16 '17 '18 '19 Sources: Scotiabank Economics, LME, Bloomberg. 5

6 Copper: Gains are Speculative & Likely Temporary, but Future Brighter Managed Money Copper Positioning 4 (Combined Futures & Options) 7 65 Copper Term Structure Long Short (Inverted) Net -2 ' lots Nov-15 May-16 Nov-16 May-17 Nov-17 Sources: Scotiabank Economics, LME, Comex, CFTC Month Basis (RHS) 4-4 USD/t LME Copper Cash Price (LHS) USD/t 35-6 Oct-14 Oct-15 Oct-16 Oct-17 Sources: Scotiabank Economics, LME. 8 kt Inventory by exchange (LHS): Copper Inventories COMEX SHFE LME Oct-14 Apr-15 Oct-15 Apr-16 Oct-16 Apr-17 Oct-17 Sources: Scotiabank Economics, LME, SHFE, COMEX

7 Nickel: A Good News, Bad News Outlook 7 Scotiabank Nickel Price Outlook Scotiabank Forecast Foreward Curve USD/lb LME Cash Nickel Price 3 Jan-15 Jan-16 Jan-17 Jan-18 Jan-19 Source: Scotiabank Economics, LME, Bloomberg. 7

8 Nickel: Good News Deficits; Bad News Inventories Nickel Supply, Demand, & Market Balance Supply, y/y Demand, y/y (inverted) Market Balance 12 1 Nickel's Inventory Challenge Exchange-listed inventories, days of forward demand Nickel Copper Zinc Aluminium kt '92 '97 '2 '7 '12 '17f '22f Source: Scotiabank Economics, Wood Mackenzie. 2 Oct-12 Apr-15 Oct-17 Sources: Scotiabank Economics, WBMS, LME, SHFE, COMEX. 8

9 Nickel: Battery Connection A Long-Term Strength Global Light-Duty Vehicle Sales Mn Vehicles ICE Sales (LHS) EV Sales (LHS) EV Share (RHS) 7% 6% 35% 3% 235 EV Additional Metals Demand Relative to 215 Global Demand 7% 6% 1 5% 25% 5% 8 4% 2% 4% 6 3% 15% 3% 4 2% 1% 2% 2 1% 5% 1% % Source: Scotiabank Economics. % Copper Nickel Lithium Cobalt Source: Scotiabank Economics. % 9

10 Zinc: Concentrate Deficit Tightens Refined Supply, Rally Not Over Yet 1.75 Scotiabank Zinc Price Outlook Forward Curve.75 Scotiabank Forecast LME Cash Zinc Price USD/lb.5 '15 '16 '17 '18 '19 Source: Scotiabank Economics, LME, Bloomberg. 1

11 Zinc: Inventories at 1-Year Low, Spot Market Extremely Tight Zinc Inventories Plunging USD/lb Zinc Inventory (RHS) Zinc Price (LHS) Demand Days Zinc Term Structure 3-Month Basis (RHS) Zinc Cash Price (LHS) USD/t USD/t -4 Oct-97 Oct-7 Oct-17 Nov-14 Nov-15 Nov-16 Nov-17 Sources: Scotiabank Economics, LME, SHFE. Sources: Scotiabank Economics, LME. 11

12 Zinc: Supply Deficit to Drive Price Higher, Incent New Mines to Market Zinc's False Mine Start Turns Scarce China (LHS) RoW (LHS) 3% World (LHS) Price (RHS) Zinc Treatment Charges Indicate Acute Concentrate Tightness $/t concentrate 1.3 2% % % % %.7 y/y change -3% 3mma USD/lb.6 Sep-13 Sep-15 Sep-17 Sources: Scotiabank Economics, WBMS YTD '17October Sources: Scotiabank Economics,Wood Mackenzie. 12

13 Aluminium: All Eyes on China s Blue Skies Scotiabank Aluminium Price Outlook 1.1 Scotiabank Forecast Forward Curve LME Cash Aluminium Price USD/lb.6 '15 '16 '17 '18 '19 Source: Scotiabank Economics, LME, Bloomberg. 13

14 Aluminium: Chinese Policy Distorted Price Signals, Bifurcating Market 5 Aluminium Supply, Demand, & Market Balance Bifurcated Market: China vs the Rest China RoW 2 Global Mt '92 Demand, y/y (inverted) Supply, y/y Market Balance '97 '2 '7 '12 '17f '22f Source: Scotiabank Economics, Wood Mackenzie kt '92 '97 '2 '7 '12 '17f '22f Source: Scotiabank Economics, Wood Mackenzie. 14

15 Aluminium: Chinese Glut Pushes Metal Overseas, Into Inventory LME-SHFE Arb To Drive Chinese Aluminium Semis Exports USD/t, 6mma Aluminium Inventories Falling, But China's Stocks at All-Time Highs Inventory by exchange (LHS): SHFE LME Price (RHS) China aluminium-1 semis net -2 exports (LHS) -2 kt, LME-SHFE -3 6mma Arbitrage (RHS) -3 Oct-11 Oct-13 Oct-15 Oct-17 Source: Scotiabank Economics, LME, SHFE, China Customs. 1.7 kt USD/lb.6 Nov-14 Nov-15 Nov-16 Nov-17 Source: Scotiabank Economics, LME, SHFE. 15

16 Bulk Commodities to Feel Weight of Slowing Chinese Housing Sector History of Bulk Commodities Prices 35 USD/t USD/t Iron Ore (LHS) 5 Met Coal (LHS) Steel, HRC China (RHS) '7 '9 '11 '13 '15 '17 Source: Scotiabank Economics, Bloomberg

17 Iron Ore: Prices Fall to Push out High-Cost Supply as Demand Fades 15 Scotiabank Iron Ore Price Outlook Scotiabank Forecast 12 Iron Ore 62% Fe Fines Spot Price, Qingdao, China USD/t '14 '15 '16 '17 '18 Source: Scotiabank Economics, Bloomberg. 17

18 Iron Ore Led Lower By Cooling Chinese Real Estate, Imports 35 Chinese Housing Prices vs Steel Tier 1 14 Chinese Real Estate Activity Slowing 4% Tier 2 Tier 3 Steel Rebar Price (RHS) % 2% % 1 4 % 5 2-2% Building Sales -5-2 Building Starts y/y % y/y % Iron Ore Imports -1 change change -4-3% y/y change, 6mma '7 '9 '11 '13 '15 '17 Oct-13 Oct-14 Oct-15 Oct-16 Oct-17 Sources: Scotiabank Economics, NBS. Sources: Scotiabank Economics, NBS. -1% 18

19 Iron Ore Coming Off A Supply Surge Amid Slowing Seaborne Demand 3% 2% Iron Ore Supply By Major Source Australia Exports Brazil Exports China Domestic 2% 15% 1% Iron Prices Need to Fall To Force Out Marginal Chinese Supply Chinese Iron Ore Production (LHS) Iron Ore Price (62% fines) 1% 75% 5% 1% 5% 25% % % % -1% -5% -1% -25% -5% -2% y/y 3mma Oct-13 Oct-14 Oct-15 Oct-16 Oct-17 Sources: Scotiabank Economics, National Statistical Agencies. y/y 3mma -15% y/y 3mma -75% Oct-13 Oct-15 Oct-17 Sources: Scotiabank Economics, NBS, Bloomberg. 19

20 Conclusion, Questions, & Metals Price Forecasts f 218f 219f 22f 221f Long Term Metals & Minerals Base Metals Copper USD/lb Nickel USD/lb Zinc USD/lb Aluminium USD/lb Bulk Commodities Iron Ore USD/t Met Coal USD/t Precious Metals Gold USD/oz Silver USD/oz Platinum USD/oz Palladium USD/oz

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