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Analysts poll; the only way is up (for most metals)?

London, 23 January 2013

Reuters: It's that time of year again when we get to take the pulse of the base metals analyst community. Thirty of them contributed 2013 and 2014 price forecasts for the latest Reuters poll, the results of which are out today. Most, it seems, are pretty upbeat about the year ahead and, with one important exception, about 2014 as well. The median 2013 price forecast for all six base metals traded on the London Metal Exchange (LME) is higher than the actual 2012 average.

That fits with a consensus view that China has avoided a "hard landing" and is set to pick up growth momentum over the coming period. Worries about the state of the world's largest metals user undermined prices across the board in the second half of 2012 and a more benign outlook this year is probably the single most important factor in these price forecasts.

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Access Graphic on poll median forecasts:

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An inference can also be drawn from the poll that most analysts reckon the rest of the world will muddle along without sliding back into crisis, whether it be the U.S. hitting its debt ceiling or the euro-zone starting to fracture again. That said, the optimism is tempered. No-one is predicting copper will re-establish itself at the historic highs above $10,000 per tonne or tin above the $30,000 per tonne level. Indeed, it is investment darling copper that bucks the anticipated trend of still higher prices in 2014.

The median 2014 call on the red metal is for an average price of $7,775 per tonne, marginally lower than last year's average.

WINNERS

No surprise to see which metals analysts have picked out for upside price potential. Tin is the favourite, an obvious choice given the soldering and plating metal's still-strong bull narrative of stretched supply. Eight analysts offered a supply-demand balance forecast for tin and not one of them is expecting anything other than deficit for either this year or next.

The median forecast is for the tin price to average $23,800 per tonne this year and almost $25,000 per tonne in 2014. There are bears out there, such as UBS, which came in with the lowest 2013 price forecast of $18,630 per tonne, but they are very much the exception. Standard Bank is marginally ahead of the bull pack with a call for $25,000 this year.

Heavy metal lead comes in as analysts' second favourite metal in terms of potential upside, again unsurprisingly given a growing buzz about lead's prospects. Analysts have always liked lead's leverage to the China and developing world story, not just in terms of automotive output but also the e-bike phenomenon, based as it is on lead-acid batteries.

But more recently the surplus in the lead market has shown steady signs of dwindling, based on statistics from the International Lead and Zinc Study Group. It's noticeable in the poll that the median assessment of market balance shifts from 6,500-tonne surplus this year to 40,000-tonne deficit in 2014. Even those expecting a surplus over the course of 2013 seem to be expecting the market to tighten next year.

No such consensus on zinc, where this year's market balance forecasts a range from a 270,000-tonne deficit to a 426,000-tonne surplus, taking in just above every point in between. But the median forecast is for average zinc prices to rise by 8 percent to $2,100 per tonne this year and to $2,227 next year.

Indeed, it is curious that zinc price forecasts, unlike the market balance forecasts, are the most tightly clustered of any of the metals with a high-low spread of just 12 percent relative to the median.

Moreover, even the lowest price forecast for this year, $1,975 from Capital Economics, represents a higher number that last year's actual outcome.

ALSO RANS

Aluminium and nickel were the also-rans in the poll with a median forecast for prices to rise by 4 percent and 3 percent respectively this year. Not that many are expecting either market to be in anything other than supply surplus. Out of 16 analysts offering an aluminium market balance forecast for this year all but one are expecting surplus with five expecting a million-tonne-plus surplus, led by Barclays Capital's call for 1.657 million tonnes of oversupply. And only three out of 16 with a market-balance estimate for nickel are expecting anything other than surplus this year.

Lacking any deficit driver for higher prices, the inference is that analysts are looking more at the potential for rising cost pressures to push up the marginal cost of production. Looking out to 2014 not one analyst expects the aluminium market to be in deficit and only two expect nickel to register supply shortfall.

The stand-out nickel contrarian is Citi, which expects deficit both this year and next and which came in with the highest price calls for both years of $21,770 and $24,400 respectively.

UNLIKELY LOSER

Copper is the unlikely laggard of this year's poll. The median 2013 price forecast for this year of $8,119 per tonne represents "only" a 2-percent rise on last year's average price. That of $7,775 per tonne for 2014 marks a 2-percent decline from 2012 levels.

The thinking behind these calls is evident from the market-balance component of the poll. The median forecast for a surplus of 127,000 tonnes this year masks a very wide range of opinion, everything from sizeable 300,000-tonne deficit to equally significant 330,000-tonne surplus.

Next year, though, only one of 15 analysts offering a view expects the copper market to be in deficit and even then CESCO's 50,000-tonne call is a marginal one. In short, everyone knows that mine supply is starting to crank up through the gears, pushing the copper market into surplus, if it is not there already, and whittling away its "deficit premium".

Moreover, recovery in China has to be seen through the prism of large off-market copper stocks sitting in Shanghai, reducing any price traction from improved demand. Mind you, few are anticipating a price collapse. UBS' low price call of $5,842 for 2014 is a real outlier, a long way off the next lowest call of $6,400 from self-professed copper bears Capital Economics.

That says much - both about where analysts suspect cost-curve support to kick in for copper and how fleeting may be copper's expected shift to supply surplus.

Ends --


Andy Home is a Reuters columnist. The opinions expressed are his own. Editing by Alison Birrane

Reuters

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