London 14/06/2016 - Expected tightness in the zinc market has prompted Macquarie to upgrade its price forecasts for the metal.
But the bank has downgraded its copper and nickel while inventory overhangs cap any potential gains, it said on Tuesday, while leaving its lead and tin forecasts unchanged.
The bank continues to prefer zinc while the raw materials shortage story continues to play out, it said. Its outlooks on lead and tin are also a little brighter beyond 2016 because of mine constraints.
For copper, the bank is "subdued if not outright bearish" on its prospects because strong mine performance has managed to offset better demand so far this year.
But both copper and zinc are vulnerable to short-term downside - the former is under pressure from a sudden surge in LME stocks and the latter has run a little ahead of its fundamentals at this stage.
Macquarie now sees copper trading at $4,600-4,800 in the second half of the year - the metal lacks sufficient triggers to carry it back to $5,000.
Chinese stock drawdowns and strong demand from the power grid are lending support but lower cathode imports expected in the rest of the year and high mine output with few disruptions are damaging its upside, it said.
It expects mine disruption rates in the second half to increase after an exceptionally calm first half.
"Ultimately, demand has been better than expected this year but so has supply, and while consumer buying and certain producers’ supportive activities have protected it from further downside in the low $4,000s, if the price strays too close to $5,000 we believe the hedgers will come out in force while any long specs will take profit."
In 2017, since it sees a surplus of 181,000 tonnes of refined metal rather than a deficit/balanced market, it lowered its forecast to the $4,700-4,900 range.
Further out, the bank sees solid upside only from 2020 when appreciable tightness is expected.
Zinc remains the star of the complex - the bank lifted its second-half forecast to $1,950-2,050.
While it believes a modest reset to around $1,900 is likely in the near term given a lack of tightness, it sees prices rebounding deeper into the second half of the year and expects it at around $2,150-2,200 by the end of the year, to average $2,325 next year and to be unchanged further out.
For nickel, the bank has reduced its price forecast or the second half of the year but said it remains constructive because mine and refinery closures have been more intense than for copper and because recent political changes in the Philippines have begun to threaten mine output in Mindanao - the most important source of ore for Chinese NPI production.
On the other side, demand looks brighter, with strong numbers for stainless steel output out of China in the first half.
Weighing on nickel, however, are high LME refined stocks.
While the bank still sees upside, it is now more muted to around $11,625 for 2017.
(Editing by Mark Shaw)