Base metals to remain subdued with narrow volatility in 2015

Analysts say much would depend on the US Fed's decision on an interest rate rise to set a direction; demand seen as unfavourable

The prices of base metals were highly volatile in 2014, nickel the most so, due to rapid change in their fundamentals. Analysts believe these prices will continue declining in 2015, with narrow volatility.

The markets would watch the two–day meeting of the US Federal Reserve’s open market committee on January 27-28, for a direction on the anticipated interest rate rise. While Fed chair Janet Yellen has indicated “no hurry” to do so, analysts think this would begin by June–July.

“After trading slightly mixed in 2014, where an extended dollar rally dented the prices, 2015 is going to be a roller coaster ride for base metal. China, the world’s largest consumer of these, faces significant headwinds and expectations of an interest rate hike by the Fed are the key factors which are likely to keep gains in check,” said Sugandha Sachdeva of Religare Securities.

Nickel reported a 22 per cent decline from its peak to close the year at $14,935 a tonne, after a weak start at $12,970 a tonne on January 1. The metal touched the year’s roof at $21,200 a tonne on suspension of exports from Indonesia, the world’s largest producer. The metal is used largely for producing stainless steel and posted a gain of around seven per cent during 2014.

Also, suspension of nickel production from the Koniambo plant in the South Pacific French territory of New Caledonia might support the metal’s move this year.

The latest report by London-based consultancy Natixis Commodity Markets has forecast nickel to average $19,000 a tonne in 2015, a gain of 13 per cent from $16,867 a tonne in 2014, on supply concerns. However, it believes the supply would ease in 2016, to bring down the average price to $17,375 a tonne.

Another global consultancy, CRU International, says the price of copper will move up to close at $6,900 a tonne by June, before falling to $3,750 a tonne by December. “Copper dropped on concern that a supply surplus will hit the market next year, just as Chinese economic growth shifts down to another gear. The global copper market is expected to remain in a surplus of about 390,000 tonnes in 2015,” said Ajay Kedia, managing director of Kedia Commodity.

While copper prices reported a decline of 14 per cent, lead and tin fell 16 per cent and 13.5 per cent in 2014, respectively.

The property sector in China slowed last year, hurting base metals. It might revive with measures by the government to boost the economy.

“While we expect zinc, aluminium and nickel to perform better, copper and lead are likely to be laggards. Along with this, a possible announcement of a stimulus package by the European Central Bank and Bank of Japan in early 2015 might provide the required impetus to metal prices and even-out the choppiness witnessed in prices,” said Sachdeva.

Natixis forecasts the average price for copper at $6,335 a tonne, aluminum at $2,071 a tonne, zinc at $2,523 a tonne and lead at $2,145 a tonne for 2015.

Demand fundamentals for base metals have been broadly unfavourable. Data showed activity in China’s factory sector shrank in December for the first time in seven months. The US Consumer Confidence Index in December (measured by The Conference Board, an independent research body)  was at 92.6, lower than the 93.9 expected by traders and analysts.