Base metals came into the spotlight during the LME Asia Week conference with copper prices taking a hit recently after analysts had been bullish on the metal earlier in the year.

Copper prices have recently been in a bear market and recorded losses three weeks in a row amid concerns over weak Chinese industrial data and the yet-to-be-settled Sino-U.S. trade tensions. U.S. President Donald Trump said earlier in May that he would raise tariffs on Chinese goods before trade negotiations, which worried traders over the U.S. demand for copper. LME Copper closed at US$6,172/t on May 7, its lowest since Feb. 14.

Mining analysts in a May 7 panel discussion at LME Asia Week were still divided on whether base metals have reached the end of the recent volatility as the fundamentals affecting the metals have recently shifted.

David Wilson, a commodity strategist at Freepoint Commodities, said the supply fundamentals of copper are supportive for now as the issues of low inventory, ongoing smelter production losses and a general uptrend in mine costs are countering the macro concerns.

He expects the mine supply growth for 2019 to slow from that of 2018. Wilson also said the output growth for copper smelters will slow with decreasing output from the major deposits in Chile and India, but this is being partially countered by Chinese smelter capacity growth.

Wilson expects copper prices to peak during the second quarter and estimated fundamental tightness to occur during the same period with a full-year deficit of about 198,000 tonnes.

But the analyst believes that increasing smelter production in Chile and continued ramp-up of Chinese capacity will limit further price upside potential for copper into the second quarter.

Further deterioration in production from the Democratic Republic of the Congo and Zambia can be one of the upside risks the copper price is facing as the two African countries have introduced tightened tax policies to their mining industries, according to Wilson. Glencore PLC had forecast that production from its Kamoto project, a major copper operation in the DRC, will be lower than expected this year as it is working to improve the operation's performance.

Other risks that could limit copper price increases include more aggressive Chinese stimulus and continued ramp-up problems of new Chinese smelter capacity, Wilson said. Downside price risks are coming from the lack of traction in terms of supporting the economic growth of China's stimulus and a potential U.S.-China trade deal.

Wilson believes that the macro environment has already priced in the China-U.S. trade deal and the impact of increased Chinese stimulus, adding that copper prices have struggled to break the US$6,500/t level. "The macro concerns have shifted from China to Europe and the U.S."

Wilson said the copper demand situation is not positive outside of China, adding that risks to the European copper demand remain skewed to the downside. "European macro data has been deteriorating for five to six months, and German industrial orders have been in contraction since June of 2018. U.S. copper demand growth is also projected to slow from last year."

Bank of China International's head of commodity markets strategy, Fu Xiao, expects that the nickel demand from the electric vehicle sector will increase from the existing level of about 50,000 tonnes per year to 400,000 tonnes per year until 2025 and that China's electric vehicle industry will continue to drive nickel demand.

Fu also said the Chinese government's support of its electric vehicle sector is still considerable, even though the government is reducing spending on subsidies for new electric vehicles by 20% year over year on average.

Earlier this year, Beijing introduced tougher subsidy policies to the electric vehicle sector. Subsidies for new energy vehicles were reduced by up to 60%. The subsidy for new electric cars with a driving range of between 300 and 400 kilometers was cut to 18,000 yuan from 45,000 yuan.

As for lead, Shanghai Metals Market Singapore's general manager, Ian Roper, said the metal is not benefiting much from Chinese reforms, and the sector has been saturated after several years of significant increases in the number of electric vehicles.

Roper also named China's environmental clampdown as a key driver for a stronger lead market price. "China's moves to improve its natural environment have led to many changes across different industries. Historically, the majority of secondary lead output was from undocumented facilities, but this has changed. The industry has to invest in environmental updates."

As of May 7, US$1 was equivalent to 6.78 Chinese yuan.