After getting off to a strong start, most analysts are forecasting base metals prices and demand to start slipping slightly as markets settle down.
As can be expected with commodity forecasting, the predictions for base metals in 2023 are mixed. However, the general consensus is that we will see a steadier price/demand cycle this year, with most tipping prices to be slightly lower than 2022, but still at historically high levels.
According to London Metal Exchange figures, the base metals index rose by 9.4% during January on the back of positive news about China’s reopening.
A recent report from MarketWatch estimated that the base metals mining market will be worth US$21M in 2022 and is forecast to a readjusted size of US$25M by 2028 with a CAGR of 2.6% during the forecast period 2022-2028.
With the Russian-Ukraine war’s dramatic impact on most base metals pricing in 2022 now easing, the resurgence of the Chinese market is tipped by most to be set to have the most significant impact on base metals prices in 2023.
According to the Economist Intelligence Unit (EIU), China’s zero-COVID policy has removed a major downside risk to its demand and global price forecasts and created an “upside risk”. However, it added that much will depend on how quickly China opens up its economy in 2023.
“Depending on how much China’s property slump continues to curb construction activity, fiscal stimulus could represent an upside for steel and base metals,” the EIU wrote in a recent report.
International financial services firm J.P. Morgan is predicting that 2023 will be a transitional year for base metals, with prices re-testing the lows approached in early 2022 by around mid-2023.
“After bottoming over mid-year, a more sustained recovery in base metals prices is set to unfold in the last few months of the year.” said Greg Shearer, head of base and precious metals strategy at J.P. Morgan.
The resurgence of the Chinese market is tipped by most to be set to have the most significant impact on base metals prices in 2023
China impact
In its recent “Year Ahead for Mining and Metals Webinar”, Fitch Ratings’ commodities analysts Johann Tan and Amelia Haines also highlighted the significant impact China will have on prices this year.
Mr Tan said Fitch expects almost all mineral and metals prices to average slightly lower this year, yet remain highly elevated, with stocks of most metals and global inventories remaining at historical lows.
“We expect prices of most commodities to rise in the coming months from current levels by average lower on an annual basis than 2022, as we do not expect prices to reach their record highs following the Russian invasion of Ukraine.
“A number of factors are behind this prognosis of ours, while we highlight significant upside risks to these forecasts depending on the extent of mainland China’s recovery in 2023.”
Mr Tan told the webinar that since mainland China announced its shift away from its zero-COVID policy at the end of 2022, Fitch has seen significant positive investor interest towards industrial metals.
“This spike in positive sentiment has driven prices upwards since December, despite temporary dips as COVID rate pieces rose in China. We’d like to highlight that prices are getting a boost despite the seasonal lull in China, with factories operating at low capacity due to the winter and the Chinese New Year holidays.
“With economic activity in China set to get a boost from March onwards, we expect industrial metal prices to see further strength ahead.”
Mr Tan also noted that inflationary pressures and a fluctuating US dollar are currently having a significant impact on metals prices.
He told the global webinar audience that declining inflation in the US, combined with a soft landing, could see the US Federal Reserve pause its tightening cycle sooner than expected.
“The most important implication of this to commodities – and so metals prices – is the broad reversal of the US dollar strength. A weaker US dollar in 2003 is set to place a firm floor under commodity prices in the coming months.”
However, he also noted that, ultimately, physical demand for metals from mainland China and investor sentiment towards Chinese activity remain the main drivers of metals prices.
“China is the world’s largest consumer and producer of most minerals and metals and … mainland China makes up close to 50% of global demand.
“This level of consumption is expected to stay consistent even in the next five years, according to our estimates. We expect central economic recovery in China, on the back of the government’s latest stimulus measures announced in October 2022, to revive the public sector and the government’s easing of COVID-19 restrictions.”
Ratings and analytics firm S&P Global is upbeat on metals market prices in 2023. In a recent report, S&P suggested that a weaker US dollar may buoy metals prices, with copper set to continue as an investment favourite.
The S&P note stated that “it will still be in vogue to be bullish copper, needed for all aspects of electrification. Diversified miners, including Eurasian Resources Group and Vale [BOVESPA: VALE3] agree”.
S&P also forecast that with prices remaining solid, a surge in metals companies’ M&A activity may follow suit.
Woodmac picks a decline
Meanwhile, Nick Pickens, a research director for copper with leading global research firm Wood Mackenzie, says softening demand, stronger supply, and weaker sentiment point to a year-on-year decline in average prices across the metals and mining industries in 2023.
“The construction sector, a key area for iron ore, steel, and base metals, will be a drag on global demand, with the Chinese real estate market remaining sluggish.
“Meanwhile, supplies of copper, aluminium, lead, zinc, iron ore, and steel, among others, will all post higher growth rates than in 2022. The production of battery materials – nickel, cobalt, and lithium – will continue to forge ahead, following double digit-growth in 2022.”
Switch to battery metals
Like Mr Pickens, most analysts are forecasting the surging interest in critical and battery metals will have a significant impact on investment in the base metals sector.
Amelia Haines from Fitch says that in general companies are starting to boost their exposure to main transmission materials, including copper, nickel, aluminium, lithium, cobalt, and low carbon steel by investments in new projects and acquisitions of existing capacity.
Fitch has noted that several the world’s leading mining companies have made a significant switch to critical minerals investment at the expense of some of their base metals budgets and this is expected to continue in the long term.
