RESEARCH: Key takeaways from the latest Base Metals Market Tracker

Aluminium: SHFE tailwind for LME prices
As we are entering the traditional strong demand season, we expect Chinese aluminium demand to show further recovery, and we expect demand from existing end-user sectors, new infrastructure projects and the export sector to show some increases. As a result, we believe that Shanghai Futures Exchange aluminium prices may edge up again after their recent retreat, and may reach a new 2020 high, which could provide a tailwind for London Metal Exchange aluminium prices.

Copper: Price may exceed $7,000 per tonne soon
Copper has continued trading at nearly its highest since June 2018, proving to be resilient despite the sell-off in other risk asset classes and the noticeable rebound in the value of the US dollar. Although we acknowledge the recent slowing of demand for Chinese refined copper, we think that copper benefits from an overall healthy fundamental backdrop, which should drive prices still higher in September. We would not be surprised to see copper trading above $7,000 per tonne this month.

Lead: Aligned with third-quarter forecast
Our base-case third-quarter forecast was for LME lead cash prices to average $1,880 per tonne, and so far they are in line with that, having averaged $1,876 per tonne. Even if consolidation continues either side of $1,950 per tonne, as we suspect it will to unwind overbought conditions, the quarterly average will be dragged up closer to $1,900 per tonne. For the time being, our fourth-quarter base-case forecast stays at $1,920 per tonne.

Nickel: Still driven by stainless steel
Nickel has enjoyed another bout of speculative bullishness over its future demand prospects from the electric-vehicle sector since Tesla chief executive officer Elon Musk called in July for more nickel mining. But that story may have run its course for the time being, especially with Tesla’s share price down heavily since the end of August. After all, nickel’s present fundamentals are still heavily dictated by stainless steel, which accounts for as much as 70% of annual demand versus about 5% from batteries. With this in mind, the focus of our analysis this week is on the stainless market’s fundamentals.

Tin: Price likely to push higher in near term
Compared with the other base metals, the rebound in tin prices since the start of the third quarter has been quite soft, mainly because the slowing of demand conditions in the summer months has weighed more on refined tin market conditions and thus on prices. But we expect the uptrend in tin prices to prevail in the months ahead, owing to Indonesian supply discipline, a recovery in demand in the world beyond China, and a supportive reflationary macro backdrop.

Zinc: Consolidation required
The accelerated run-up in zinc prices since July seems to have encountered an area of stronger resistance, which is causing consolidation. But with mine supply still being disrupted, refined demand set for a seasonal improvement and the reflationary macro dynamics still in play, we think that any consolidative pullback will probably be limited by keen dip-buying interest, which in turn will lead to new highs.

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