Center Valley, Pennsylvania 27/07/2016 - Metals and mineral prices have probably hit bottom but the rebound in 2017 is only expected to be a modest one, according to a quarterly report from the World Bank.
The bank expects industrial metal prices to decline 11 percent this year, which follows last year’s 21-percent drop, due to weak demand and new capacity coming online, the bank said.
But prices are seen increasing a moderate 3.6 percent next year because the market is expected to tighten due to reduced investment in new capacity, rising global demand and environmental policy constraints, it added.
"Metals prices rose by five percent in the second quarter, the first increase in seven consecutive quarters. Prices rebounded from lows during the first quarter on production cuts, stronger demand, falling stocks, and a weaker dollar," said the World Bank, which noted that the gains have been concentrated in iron ore, zinc and tin.
"All metal prices continued to move higher in July, particularly nickel on expected supply tightness in the Philippines. Metals consumption has been relatively strong due to firming industrial activity globally. China’s metal consumption has been buoyed by stimulus measures and increases in fixed asset investment, notably for infrastructure," it added.
Meanwhile, on the supply side, declining investment and the closure of high-cost operations have been more than offset by new low-cost capacity from legacy projects.
"The recent price rally may tempt producers to restart idled capacity or delay further closures," it said. "Supply at existing operations has been supported by significant cost reductions, producer country currency devaluations, and better management practices. However a reversal in exchange rates and oil prices is now reflating production costs."
Downside price risks include a further slowdown in China and currency depreciations in key suppliers, the World Bank said.
Upside risks are centred on stronger global demand and supply shortfalls from project delays, operational disruptions, falling ore grades, increased environmental constraints and more closures of high-cost capacity, it concluded.
(Editing by Mark Shaw)