Base Metal Market Quarterly Outlook - Q4 2024
As part of StoneX's 'Global Commodity Quarterly Outlook', please find the base metal market outlook below.
StoneX Base Metal Market Balances & 2025 Ranking
Source: StoneX
Bullish Factors:
Bearish Factors:
YTD Commodity Asset Price Performance
Source: Bloomberg
Bloomberg LME Base Metal 3M Index Versus US Dollar
Source: Bloomberg
Base Metal LME £M Price Performance 2024
Source: Bloomberg
The base metal suite has been on a rollercoaster ride in 2024, starting the year as the weakest performing commodity asset, with concerns around sticky inflation, higher for-for-longer interest rates and rising uncertainty on the back of escalating geopolitical tensions, before soaring to become the best performing asset class by mid-May, driven by a significant influx of speculative money (particularly in copper). Here, investors focused on the red metal’s fast-growing use in artificial intelligence and the green transition, set against a backdrop of supply risks, with copper prices rising to their highest nominal level on record of $10,666/t by 20th May. This was, however, short lived, with more than $20bn in bullish copper bets wiped out over the course of the following two months, while global manufacturing moved into recession by July, and attention shifted to weak economic data readings in China, the largest producer and consumer of base metals.
As it stands, base metals are on track to end the year as the third best performing commodity asset class in 2024, with the index forecast to rebound from declines recorded over the previous two years, as the outlook for the macroeconomic landscape starts to brighten. Here, we allude to the first US interest rate cut in four years (on 18th September), which alongside other western central banks, has reflected the start of cyclical demand recovery. Alongside this, we forecast robust growth from emerging markets (e.g. India), while in China, expectations are building that additional fiscal (and possibly monetary) stimulus will be announced before year-end. Having said this, there remains ongoing uncertainties in the outlook to end-2024 and beyond, including the outcome of the US election in November, in addition to the health of global trade relationships, given 2024 marks a year of more than 50 general elections.
Turning to fundamentals, it is demand that has been the focus point over the last three months, and it is likely to remain at the forefront of the market into H1 2025. The reason is that despite ongoing supply risks, modest consumption year-to-date has resulted in base metal market balances (except for tin), staying in, or moving into surpluses. With this in mind, we do not see materially higher metal prices developing until demand can improve from current levels. On a geographical basis, following the beginning of interest rate cuts in the west, recovery in household spending (especially on big ticket items like vehicles or housing) is usually lagged by a period of ~ six months. Indeed, if we compare the fair value of the US stock market following an initial rate cut (going back to 1996), on average, values in the first three months typically decline, before gains develop.
PMI Manufacturing Readings
Source: Bloomberg
The pace of economic growth in China remains a concern, with Q2 GDP coming in at 4.7%, down from 5.3% in Q1 and 5.2% in 2023. The largest negative driver behind this stems from the property market, with excess inventory and little to no demand for housing, resulting in new home prices in August falling to their lowest level since 2014. With property investment deep in the red, the outlook for construction remains weak, negatively impacting metals with a high end-use exposure to the construction market, such as zinc (60%), copper (27%) and aluminium (23%). In addition to this, looking at M/M readings within China, even strongly performing growth sectors, such as industrial production, have been recording a slowdown in growth in H2, while demand side drivers e.g. retail sales, have fallen to their lowest level of growth since December 2022. With this in mind, it is widely expected that China will announce additional stimulus measures sooner rather than later in the country in order to boost growth. That said, with business confidence at an all-time record low and unemployment on the rise, it is not surprising that the World Bank has downgraded its GDP growth forecast to just 4.1% in 2025, its lowest level since 2022 (when China was in lockdown from COVID-19).
On a brighter note, we forecast that base metals with exposure to renewable energies, electric vehicles or energy storage (namely copper, aluminium, tin and nickel) will benefit from double-digit growth in these sectors in the year ahead, although it is worth noting this this sector (on average) contributes less than 10% of total end-use market share.
On the supply side, the base metal market has increased its raw material scarcity over the year, driven by weather related issues, social and political unrest, falling ore grades, and of late, low metal prices, limiting operation profitability and resulting in reduced production guidance. This can be seen most obviously within the copper, lead and zinc markets with spot smelter treatment charges (the cost smelters charge miners to refine ore and concentrate), falling to their lowest levels on record in 2024. This has had a knock-on impact to refined supply, with lead, zinc and tin forecast to record output declines Y/Y in 2024, while growth has declined Y/Y for copper and nickel. Aluminium is the only metal of the suite forecast to record an acceleration in Y/Y production growth, driven by record output within China and a refocusing on recycling. It is also worth noting on the refined side of the market, ample global stocks, regional market imbalances and weak demand have limited the full impact of some of these concentrate shortages.
Looking to 2025, we forecast that new projects in the pipeline will start to alleviate concentrate tightness, while higher metal prices (driven by an improving demand outlook) will support miners’ margins. We do not forecast any declines in refined output in 2025. However, we remain of the view that supply risks outweigh opportunities in the base metal space, with risks arising from altered trade routes, the rise of natural resource protectionism, structural declines and underinvestment in new mining projects, political and social unrest, power prices, exposure to weather, speed of technological changes and the influence of ESG.
Looking at global stock levels, over the year there has been an increase in refined material build across the exchanges, reducing fears over future price volatility associated with historically low levels that were recorded at end-2023. Having said this, any sharp uptick in demand or extended supply threat could see this theme return to the market in the year ahead.
On a final note, the role of speculative investors (across COMEX, LME and SHFE) should not be overlooked. As it stands, investors’ hold bullish bets on tin, copper, aluminium and zinc, while nickel and lead are unfavoured.
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