FOCUS - JP Morgan lifts 'outperforming' zinc price forecast for H2, lowers copper

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London 01/07/2016 - By Charlie Dickens

JP Morgan has raised its price forecast for zinc the second half of 2016 - the metal continues to outperform its predictions, it said in its quarterly report.

The bank significantly increased its second-half price forecast to $2,050 per tonne, believing that zinc is likely to remain well supported while the physical market continues its path towards a significant deficit in 2017.

It sees the market deficit reaching roughly 210,000 tonnes this year and said it is likely to extend to nearly 430,000 tonnes next year, putting upward pressure on price the price, which will reaching an estimated $2,200 in the fourth quarter of 2017.

But JP Morgan sees some downside risk to its forecasts, acknowledging that "higher prices could incentivise significant restarts or production increases" from the likes of Glencore plc or if Chinese mined or refined production takes advantage of higher prices.

In other metals, JP Morgan sees copper continuing its poor performance. Excess supply is likely to persist because the rate of depreciation in the cost of copper mining is increasing so an increase in supply should follow.

As well, growth in global demand is likely to remain relatively low - it was 0.8 percent in the recent quarter, down 0.5 percentage points from the first quarter, the bank said.

Prices are likely to average $4,400 per tonne for this quarter before recovering to $4,500 for the fourth quarter, JP Morgan predicted. But the outlook for 2017 is dull - since the market is likely to remain in surplus, the bank sees the price falling to average $4,200 per tonne although this should be the bottom before a recovery to $5,500 by 2019.

In the aluminium market, Chinese production surprisingly remains restrained. Coupled with a sufficient level of demand, this has led to relatively high prices

But in the second half of the year almost 1 million tonnes of new Chinese production is due to come onstream, which, alongside a fall in demand, will put downward pressure on the price.

Acknowledging that aluminium is well bid below $1,500 per tonne, JP Morgan lifted its third-quarter price forecast to $1,525 per tonne while keeping its estimate for the fourth quarter at $1,485.

Last year the bank had a bearish outlook for the nickel market because China had excess supply of some 14 percent, stressing that the differential between demand and supply could only be balanced by improved demand or lower Chinese production - with the latter the more feasible option.

It now sees refined nickel production of 1.96 million tonnes in 2016, a decline of 1.3 percent on the 2015 level, and expects expect global demand to increase 2.5 percent.

It sees the nickel market in a surplus of just 13,000 tonnes this year and 6,000 tonnes in 2017, prompting it to raise its third-quarter forecast by six percent but keeping its fourth-quarter prediction unchanged. For the full year, it sees prices averaging $8,500 per tonne, up from $8,300 in its March forecast.

For gold and silver, the unexpected Brexit has boosted the obvious attraction of gold and silver as safe-haven assets, JP Morgan said.

It raised its gold price forecast for the second half by 11 percent to $1,365 per ounce and its forecast for 2017 by six percent. It also raised its silver price forecast - it now sees the metal averaging $17.61 per ounce in the second half of 2016 and $18.24 per ounce in 2017.

(Editing by Mark Shaw) 



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