Commodity consensus price forecasts — Bullish for 2020, nickel and cobalt seen as winners

By Matthew Piggott | October 9, 2019

At end-September 2019, the consensus price target for most commodities covered indicated rising prices in 2020 when measured against the average of the first nine months of 2019. Among the precious metals, gold is expected to see a 3.8% rise in 2020 versus the first nine months of 2019. This is despite September price weakness as Fed minutes showed mixed views on the necessity of further rate cuts. At end-September, the CME's FedWatch tool showed only a 40% chance of a 25-basis-point cut at the Federal Open Market Committee's October meeting. By October 4, this had risen to a 79% expectation. The expectation is nevertheless for higher prices on average in 2020, although stagnating thereafter. Target prices between 2020 and 2023 were revised upward by between 1% and 2% over the month.

Silver target prices are expected to rise 6.1% from the nine-month average, overcoming potential weakness in industrial applications through strong investor interest on the back of gold's rise. Over September, spot silver lost 7.4% for the month, yet the consensus average for 2020 rose by 2%.

Copper and zinc are expected to rise in 2020, the former by 5.7%, although zinc targets are expected to rise by a more modest 3.5%. For copper, the large magnitude of such an increase can be mostly explained by the persistent weakness prevalent in copper prices across much of the second half of 2019. London Metal Exchange cash copper gained 1% over September but lost ground again in early October. Prices still lie below US$6,000 per tonne, and macroeconomic concerns still persist without any resolution to the U.S.-China trade dispute in sight. While we expect global refined copper consumption to increase 2.0% in 2019 and 3.0% in 2020, there are significant risks to the downside to the demand side of the copper balance. We therefore expect copper prices to be some 6% lower than the consensus expectations in 2020. While consensus is for prices to increase in 2020, target prices were in fact trimmed over the month.

The slight average forecast gain for zinc in 2020 is due to the bearish price performance of the metal in the last six months. The market has returned to surplus earlier than expected, and demand worries have led us to revise downward our forecasts for refined zinc demand. LME cash zinc did rise over September, by 5.8%, yet consensus target prices out to 2022 were revised down by 1% from last month. We forecast a continued surplus in 2020 and for prices to fall further as a result.

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The battery metals are set to be winners in 2020. Nickel consensus prices are forecast to rise successively out to 2023, with increases to the average from end-August targets. The consensus average for 2020 rose by 10.0%, for 2021 by 6.8%, for 2022 by 4% and for 2023 by 3.4%, on the back of the sharp price increase seen already. LME cash nickel has gained 52% since a low in early June, driven by robust stainless steel production, falling refined stocks and speculative interest related to constrained supply of nickel pig iron source material from Indonesia, driving refined prices higher. Nickel hit a five-year high of US$18,850/t on Sept. 2. Cobalt in 2020 is set to gain some 29.3% from the average of the first nine months of 2019. Since August, LME cash cobalt has risen after news that Glencore PLC would place its Mutanda mine on care and maintenance for two years. Consensus expectations are for cobalt to rise by 61.7% from 2019 to 2023.

There were some exceptions in the list of 2020 winners — notably palladium and iron ore. Palladium prices have been performing strongly in 2019 despite two major corrections, as expectations of growing demand from emissions controls have outweighed some weakness in the growth rate of auto sales numbers. At end-September, the palladium spot price was up 32.8%. We believe that the 2020 average shows an expectation of further corrections to come in an overall positive price trajectory. Iron ore prices are expected to fall from an overall strong price environment in 2019. Chinese winter steel capacity cuts and slowing steel demand growth should hamper demand for iron ore into early 2020. Added to that, the gradual return of supply from Brazil will place the balance under pressure, shrinking a market deficit. Consensus expectations are for average prices to fall out to 2022.

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