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The new year has got off to a relatively weak start for the base metals with London Metal Exchange prices generally lower in January. This reflects seasonal volatility, a rebound in the US dollar and other macroeconomic and geopolitical uncertainties that have dented risk appetite. But short-term price weakness should be viewed as a buying opportunity because there are positive macroeconomic factors ahead that should shape 2024. These factors include potential US Federal Reserve rate cuts and monetary policy injections in China, both of which could boost market liquidity and support base metal prices in the process.
The best performers of the group this year are likely to be those that have the strongest fundamental dynamics to enhance the effect of the broader macroeconomic backdrop. Here we review the outlooks for each base metal in order of their fundamentals – tightest to loosest.
After a series of high profile mine disruptions, suspensions and negative guidance revisions in the final quarter of 2023, copper now has the tightest fundamental outlook of all the base metals in 2024. Indeed, it is the only one for which we are forecasting a refined market supply-demand deficit this year. The deficit is small – around 0.5% of world demand – but it is a deficit nonetheless. And the supply shortfall is set to expand in 2025 as copper’s robust demand profile – boosted by green applications from the energy transition – accelerates next year. Anticipation of this future increased tightness is also likely to play a part in buoying copper market sentiment and prices this year by fostering a ‘buy the dip’ mentality.
While all our base metal price forecasts have a monthly granularity and are reviewed and revised at the start of each month, we only consider our annual average forecast here. Currently, this projection shows an average LME cash copper price of approximately $8,900 per tonne in 2024. This suggests a 5% increase from the 2023 average, which would be the strongest incremental performance of all the metals and consistent with our fundamental preference for this market.
The trend in treatment and refining charges (TC/RCs) is to the downside as the market continues to adjust to the recent supply shocks. The concentrate market balance will show a deficit of around 300,000 tonnes this year and the downtrend in TC/RCs is forecast to bottom out in the early part of the second quarter, providing there are no more major supply shocks, including from El Niño weather patterns, which are a risk for the first quarter in particular.
We forecast a balanced global tin market in 2024. Our tin price forecast model puts the LME cash price average at around $27,040 per tonne, representing a gain of approximately 4% from 2023. We anticipate 2024 to be a year of recovery for tin following a challenging 2023, which saw a 17% decline in prices from 2022 based on annual averages.
On the fundamental side, we see a tightening of the refined market, driven by increased semiconductor sales and the impact of the mining ban in Myanmar.
For the remaining four base metals, we are forecasting oversupplied global market balances in 2024. But at 0.4% of total demand, the projected surplus in aluminium is minimal, which should be supportive for prices this year. Our current forecast is for the LME cash price to average $2,212 per tonne in 2024, 1.6% lower than last year’s average.
While aluminium demand growth should improve to 2.8% from 0.9% in 2023, primary production is forecast to expand at a similar pace, accelerating from last year’s 1.3%. Chinese production is expected to reach 42.2 million tonnes in 2024, up 2.2%, with peak operational capacity hitting around 45 million tonnes per year – the upper limit of the government’s capacity ceiling. Production for the rest of the world will expand by 3.8%, reversing the declines of the previous two years.
The global refined lead market is expected to move from a small supply surplus in 2023 to a bigger surplus this year equivalent to 0.9% of annual demand. This is likely to emerge on the back of higher Chinese production and therefore the potential for elevated export volumes to ex-China markets. This is a fundamental backdrop that should leave lead prices under pressure around the pivotal $2,000-per-tonne level, before recovering in 2025, when the market is projected to move back into a supply deficit.
We forecast an annual average lead price of $2,022 per tonne, which is 5.4% below the 2023 average, but still around the middle of a broad sideways trading range that has prevailed for more than the past 10 years.
Lead’s sister metal zinc is in a weaker fundamental state with a refined market surplus equivalent to 2.6% of demand this year, though we have recently had to revise this lower amid production curtailments, mining company guidance downgrades and project delays. The risk to this outlook is that the market tightens further due to additional supply adjustments, which would help prices.
We will adjust our forecasts for prices, premiums and treatment charges accordingly in the coming months if those developments exceed our current disruption allowances. As it stands at the moment, the LME zinc price is modelled to average $2,471 per tonne, some 6.5% below the 2023 average. Any upside potential in the short term is likely to be limited to bear market rallies, with resilience forecast for the second half of the year contingent on Chinese authorities successfully navigating the property market turmoil and managing contagion risks, which remain our base case view.
The nickel market is in the worst fundamental state of all the base metals, due to considerable and persistent oversupply – the result of excessive investment by Chinese companies in Indonesia-based mining and processing operations in recent years.
We forecast a surplus equivalent to 5.1% of the market size in 2024 – double the relative surplus of the next-loosest market, zinc. But at least nickel’s projected surplus this year is lower than last year’s 7%. That will not prevent another deep down-year for average nickel prices, which at $16,775 per tonne for 2024 is optimistic given current trading levels, but still 22% below the 2023 average.
We maintain that there is room for a bear market rally in the first quarter of 2024, before the poor fundamentals reassert themselves and price weakness resumes. Technical and empirical analysis, speculative positioning, seasonality, macro factors and a flurry of cost-cutting measures by producers under margin pressure, all support the case for a nickel price rebound in the first quarter. In the absence of more meaningful discipline by leading producers, the price trend will be lower after that.
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