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Informist, Monday, Dec. 16, 2024

 

By Ashutosh Pati and Abhijit Doshi

 

MUMBAI – While the short-term outlook on base metals remains bearish, prices of most metals are likely to rise in the long term, with zinc and aluminium leading the way, said N.S. Ramaswamy, head, commodities and customer relationship management at Ventura Securities.

 

Sluggish demand for non-ferrous metals from China could weigh on prices in the short term. However, lower inventory levels and supply constraints in top producing countries, along with higher raw material prices, could set aluminium and zinc for gains in the long term, Ramaswamy told Informist in an interview.

 

ZINC

Trafigura Group, one of the world's leading traders, producers and operators of zinc smelters, ordered a 97,225-tonne withdrawal from the London Metal Exchange, which has driven a very sharp rally and rise in zinc prices, Ramaswamy said.

 

Zinc is also facing a supply deficit of 164,000 tonnes in 2024, against the market's expectation of a deficit of only 56,000 tonnes. This has been driven by the third consecutive year of declining global mine output, he said.

 

The production will also be a little impacted as there is a huge cost for zinc components such as zinc concentrate. Sulfuric acid procurement is also constraining the industry. This is leading to operating expenses and impacting the profit margin of the producers, he added.

 

"So next year, there is going to be a big shortage of zinc concentrate because these are the mining parts, or rather you can call it a raw material for the zinc metal which is used to galvanize steel, and globally mined zinc supply shortage is likely to persist," Ramaswamy said.

 

ALUMINIUM

Supply disruptions from Guinea, Brazil, and Australia have driven alumina prices to over $700 per tonne, more than double since 2023. "It's a story which came up long back, but we are still having the impact of that on aluminium prices," Ramaswamy said.

 

Rising alumina prices led Russia's leading aluminium producer Rusal to cut production by 6% per annum in the first stage of its production optimisation programme.

 

In addition, China, the world's largest aluminium producer, is under strain as rising alumina costs outpace aluminium price increases, Ramaswamy said. China's aluminium output is now likely to stay within the country as it has cancelled almost 13% of the export tax refund for its products, which has resulted in a global tightening of supplies. Further, with Chinese port inventories at their lowest since 2015, smelters may need to cut production, tightening metal supplies and driving up aluminium prices, Ramaswamy added.

 

COPPER

In China, exporters are looking at overseas markets because there is an internal weakening of demand. "China's inflation rose at a very slow pace in the four months up to almost October, and despite the stimulus package, which came from Beijing, the market appetite was not good enough," Ramaswamy said.

 

In November, the country's copper imports reached a one-year high of 528,000 tonnes. Along with that, copper inventories in warehouses, monitored by the Shanghai Futures Exchange, fell 29% to a nine-month low of 108,775 tonnes last month. A combination of lower domestic stockpiles and mixed import trends highlights tightening supply conditions in China's domestic market, Ramaswamy said. According to him, the top copper-consuming country will expand domestic demand and boost consumption. China wants consumers and businesses to borrow, invest, and spend again, and its goal is to refuel growth and avoid a slide in prices, he added.

 

With US President-elect Donald Trump's threat to impose tariffs on imports from China, companies in the country are now rushing goods to the US before the new tariffs come into effect. "China's trade surplus ballooned to $97.4 billion in November because they found this a great opportunity before the tariff comes, there is a rush of goods to the US," Ramaswamy said. "Globally, China's products are really competitive, so whatever would be the tariff, it's not going to really impact Chinese exporters or even the global importers from China," he added.

 

"If China implements the fiscal policies and, touch wood, if the tariffs are bearable for the rest of the globe importers from China, which will easily absorb that tariff, then this is going to be a story of China going forward in 2025," Ramaswamy said.

 

BULLION

In the short term, gold prices are going to be supported by the prospect of another 25-basis-point interest rate cut by the US Federal Reserve. The outcome of the US Federal Open Market Committee's monetary policy meeting is due early Thursday. Lower interest rates reduce borrowing costs, increasing liquidity in the market and making the non-yielding yellow metal more appealing to investors. The Chicago Mercantile Exchange Group's FedWatch tool shows that Fed fund futures have priced in a 97.1% chance of a 25-bps rate cut by the Federal Open Market Committee and a 2.9% chance of no interest rate cut.

 

In the long run, "it's a mixed bag," Ramaswamy said. "Gold's gain is getting constantly restricted when you have the treasury yield going up and the dollar index also going up. So that's a pressure because the asset class is changing. The asset class would be looking out for investing in dollars straight away rather than in gold on this particular matter," Ramaswamy said.

 

The Chicago Mercantile Exchange is launching a 1-ounce gold futures contract in January, which is going to meet the growing demand from retail investors, which is one of the reasons gold prices could rise next year.

 

Moreover, the growing geopolitical turmoil in Syria will support gold prices, Ramaswamy said. "US President Joe Biden warned that President Assad's collapse could pave the way for the resurgence of Islamic extremism, heightening concerns about regional instability and further supporting gold's appeal as a safe-haven investment," he said.

 

Central banks worldwide have also increased their gold purchases to protect against external shocks in an increasingly uncertain global environment. India has added 77 tonnes this year and China's holdings have increased to 72.96 million ounces, diversifying reserves and protecting against currency depreciation, he said. 

 

Ramaswamy expects gold to be in the range of INR 80,000-INR 82,000 per 10 grams on the domestic bourse in 2025. On the COMEX, if the technical level at $2,720 per ounce is broken, the rally will test an all-time high of $2,900 per ounce.

 

Gains in silver are expected to be much higher than gold next year. "China's goal for a national solar grid by 2030 and India's announcement of $109 billion for renewable energy prices will further drive silver demand," he said. "Silver is looking extremely good, and it has to rally more than INR 100,000 per kg."

 

CRUDE OIL

Ventura Securities is bullish on crude oil prices in the short term. However, its long-term view is sideways to bearish. "The EU and US are continuing stricter sanctions on Russia's oil trade. This has served as support for oil prices in the face of mounting downward pressure," Ramaswamy said.

 

The International Energy Agency sees a surplus of around 950,000 barrels per day in the oil market in 2025, which is not in line with the forecast of the Organization of the Petroleum Exporting Countries and allies. OPEC is supposed to just maintain the present production levels for now and not increase it, Ramaswamy said. "...the reasons they are citing is that there is no demand. They are more interested to see that the price levels shouldn't fall and that is the reason they are constantly postponing the production cuts until April 2025," Ramaswamy added.

 

Further, China's slower demand is impacting the global oil market. "... but the silver lining here is, again, people are waiting for their policy changes, if the policy changes come, then the demand will pick up," Ramaswamy said. Electric vehicle adoption in China is also rising, which will drag down prices. End

 

US$1 = INR 84.82 

IST, or Indian Standard Time, is five-and-a-half hours ahead of GMT

 

Edited by Namrata Rao

 

 

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