London 26/01/2016 - The growing headwinds facing world economic growth prospects in 2016 have prompted Triland to cuts its copper and aluminium price forecasts for this year.
The World Bank's recent downgrade to its global outlook - it now forecasts expansion of 2.9 percent this year, down from the rate of 3.3 percent it predicted in June - does not bode well for the industrial commodities, many of which are already saddled with oversupply and high stocks, Triland said in its quarterly report on Tuesday.
It cut its price forecast for the annual average aluminium price in 2016 to $1,450-1,650 per tonne from $1,600-1,800 previously. Three-month aluminium on the LME recently traded at $1,482.50 per tonne, up $6.50 on Monday's close.
Although Chinese smelters are believed to have shuttered nearly five million tonnes per year of capacity in 2015 and Alcoa has announced another substantial capacity cull of its own, the broker remains sceptical about the commitment to cuts in China, while new and lower-cost capacity is coming on stream in China and elsewhere.
While it expects another year of robust demand growth, Triland also forecasts another annual surplus unless the rate of fresh cuts intensifies.
The aluminium market also faces pressure from off-market stocks - the move away from ultra-low interest rates by the US Federal Reserve will affect the profitability of warehouse financing deals and could lead to these stocks coming back to the free market, it added.
In copper, stockpiling by China's SRB and reduced production from Chinese smelters should remove some 400,000 tonnes from the market in early 2016, tightening availability, the broker noted.
Grid expansion in China alongside solid economic activity in the US and parts of Europe and Asia will support a modest 2.5- percent increase in copper usage in 2016, it said.
But while the scale of supply cuts/disruptions at the mining and smelter stages continue to mount, the recent run of mine expansions will ensure that refined copper production continues to expand in 2016, Triland said.
It forecasts production growth of 2.8 percent, which "ensures a small global surplus this year, which will do little to sow the seeds of recovery in copper prices, yet", it said.
Accordingly, the broker cut its price forecast to the $4,500-4,900 range from $5,400-5,700 previously. The metal last traded at $4,483, up $66.
(Editing by Mark Shaw)