Metals market outlook

Noting metals are entering “uncharted territory” in 2011 with a series of firsts and new landmarks being set along the way, Barclays Capital commodities analysts revised metals price forecasts higher to reflect positive fundamentals and tighter market balances.

“Out in front, and by a big margin, are the trailbreakers copper and tin,” said the analysts.

“With stocks-to-consumption ratios for these metals forecast to fall to record lows, set against a market with newfound confidence, we believe the prices will rise much further still, with copper prices expected to average more than $13,000/t by the end of the year,” Barclays Capital predicted.

Barclays’ precious metal forecasts for this year include $1,495/oz gold, $20.1/oz silver, $1,815/oz platinum, and $820/oz palladium. Base metals forecasts for 2011 include $11,500/t copper, $2,588/t lead, $28,625/t nickel, $32,000/t tin, and $2,538/t zinc.

COPPER: In their analysis, Barclays Commodities observed that a re-pricing of the 2011 economic outlook has had a palpable impact on copper prices. “The flow of very positive economic data has given the market something it lacked in 2010-confidence. This has added another layer of strength to raising the base for our forecasts.”

“Consequently, we believe that when our projected fundamentals do play out, the price response will be even higher and we have revised our forecasts upwards to account for this,” the analysts said.

GOLD: Despite the sharp correction this month, Barclays maintains a positive view on gold prices for the year. “Gold has suffered steep corrections in this past that have proved healthy for prices to rebuild their losses.”

LEAD: Barclays noted that lead has been the weakest performer across the base metals complex in the past month, “close to flat, which compares poorly with the double-digit percentage gains achieved by tin and nickel.”

Nevertheless, the analysts now forecast the lead market “to ultimately shift into a significant deficit by H2 11, which represents a change from our previous forecast for a moderate surplus.” For instance, little growth has been predicted in Chinese mined lead production. Meanwhile, the supply side of the lead market “remains extremely disruption prone and the prospects for global supply are very much constrained.”

NICKEL: Nickel prices are now at their highest levels since mid-2008, according to Barclays. The analysts suggested that upward momentum in nickel prices to continue this month with a $30,000/t a near term target.

PALLADIUM: Similar to platinum, palladium has consolidated its gains above $800/oz and tested levels not seen in almost 10 years. “The palladium balance is set to remain constructive this year, as supplies show and industrial and investment demand remains healthy,” Barclays advised.

PLATINUM: Platinum supply growth remains vulnerable due to potential South African power supply shortages. Demand from China remains robust. In contrast to gold and silver, platinum ETPs flows retain their positive momentum.

SILVER: Silver kicked off 2011 in poor form and was the weakest performing precious metal last month. “Although in surplus fundamentally, investor interest has been torn in January, and silver has been caught between staggering retail coin demand and hefty ETP net redemptions,” the analysts observed. “When invest demand wanes, industrial demand will need to plug the gap.”

TIN: Tin is regularly setting new record prices close to $31,000/t thus far this year. With no new mine supply on the horizon and the demand side well supported by robust Chinese growth, “this is a low risk supposition in terms of market expectations,” said the analysts. “While there is enough inventory to buffer the effect of the projected 2011 deficit, after that point, it is clear that the price signal will have to rise high enough to ration demand as otherwise stocks will fall close to depletion.”

ZINC: Chinese refined zinc production hit a record high in December, and mine production was the second highest on record. “However, current mines are facing a declining ore reserve base, and continued strong growth will depend on investment in larger mines and the performance of the informal sector, leading to the risk of Chinese output stalling in 2011,” Barclays advised. “This will be the key swing factor for zinc prices this year, in our view.”

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