London — The global manufacturing sector is in recession, which does not bode well for the outlook for metals, speakers at a London Metals Exchange seminar said Monday.
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Kicking off LME Week in London, market specialists expressed only cautious optimism for the 2020 outlook for metals, even though most currently show a supply deficit.
Seminar participants overall, in an electronic poll, saw the brightest prospects for nickel, recently bolstered by an Indonesian ore export ban, closely followed by gold, considered a safe haven in times of economic turmoil.
Zinc prices were seen falling further in the near term on increased production and a slow construction sector in China. Aluminum was seen heading for pronounced volatility, while the copper market was seen in supply-demand balance but with slow demand growth.
"There is no doubt the global manufacturing sector is currently in recession, and that is not going to help metals," said Edward Meir, a senior commodity consultant at EDF Man Capital Markets.
AGREEMENT ON RECESSION
Jorge Vazquez, managing director of US-based Harbor Aluminum, and Vanessa Davidson, director of base metals research and strategy at CRU, agreed that the EU was in a manufacturing recession. Vazquez said manufacturing in North America was contracting, while Davidson said the German market was "terribly weak."
Greg Barker, chairman of Russia-based aluminum and energy-producing group EN+, said the US-China trade dispute was having a substantial cooling effect on manufacturing worldwide.
"We won't see a major shift until this is sorted," Barker said.
Catherine Mann, managing director and global chief economist at Citibank, said, "Trade is now in retreat ... with significant consequences for emerging nations."
The economist blamed this on the near-term issues arising from the United States' trade tensions with China, Japan, the EU and other regions.
TEPID COPPER RECOVERY
CRU's Davidson said copper can expect at most a tepid recovery, with world demand for the metal seen rising 1.4% next year, which should bring LME 3 months prices to average $5,900/mt, "similar to the likely outcome for 2019." Currently, 3 months prices are at $5,886/mt.
EDF Man's Meir said that although he is "relatively bullish on nickel, getting above $20,000 will be a stretch." The Indonesia nickel ore export ban is not expected to affect the market so much next year, and growth in electric vehicles won't kick into nickel demand for several years yet, leaving stainless steel as the important nickel market driver.
The LME 3 months nickel market price is likely to be at a high of $19,200/mt next year, a low of $13,500/mt and an average of $14.500/mt, Meir said.
Harbor's Vazquez said he saw a slight rally within six months in the "extremely bearish" aluminum market, then a fall in Q2 2020 to an average of $1,720/mt next year, only slightly above current LME cash prices of $1,720/mt.
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