Global metals & materials: 2016 outlook

Kenneth Hoffman, Zhou Zhang, Eily OngBloomberg Intelligence analysts

Global precious metal 2016 outlook

Precious metals price slump may prompt output cuts

The long-term decline in precious-metals prices may finally lead to significant production cuts in 2016. Platinum-group metals producers such as Lonmin plan to reduce output as they struggle to stay in business, and high-cost gold miners are beginning to shutter operations.

The supply response could signal a bottoming of prices. Demand from China could again push gold to a record, while a strong U.S. dollar will be bearish for all metals.

Gold travels east via Switzerland as Asia seeks safe haven

China is still showing an appetite for gold, as physical gold deliveries soared to almost 2 million kilograms during the first nine months of 2015, according to the Shanghai Gold Exchange. More gold is heading east, with outflows into Asian countries from exchange-traded funds in North America and Europe.

China and India, which claim to be the top global consumers, are importing large quantities of gold from Switzerland, which is taking in gold from the U.K. Gold is viewed as a safe haven in Asia.

China seeks larger role in world gold market

China has been the world’s largest consumer and producer of gold, and the nation is seeking more influence in the global gold market, being very much a price-taker. Shanghai Gold Exchange, the world’s largest trading platform for physical gold, introduced the international board in the Shanghai Free Trade Zone, a move that allows more trading.

Two Chinese banks have joined the London Bullion Market Association’s price-setting auction. China’s gold consumption is expected to determine global demand and prices.

Platinum group metals net demand may decline in 2015 on China

The deficit between demand and supply for the main platinum group metals will likely narrow this year, according to data from Johnson Matthey, amid a recovery in South African production and reduced investment use.

Jewelry demand is also expected to decline as an increase in purchasing from India is offset by weaker demand from China. Autocatalyst needs may increase as a result of higher emission limits and growth in vehicle production.

Global base metal 2016 outlook

China supercycle ends, metal returns vary greatly

Chinese demand for metals reversed course in 2015, causing prices to decline by 11-36%. As the Chinese economy transforms to one more consumer based, metals that were in high demand during the construction peak may not be needed.

Using metals as collateral in the financing of the “carry trade” may also be ending, causing both a decline in demand and excess supply coming back into the market.

China lead production, demand drive global market

Lead prices fell 10.6% this year through Nov. 6, due to concerns over China’s economic slowdown and plunging demand in the country, the world’s largest producer and consumer of the metal.

Global refined lead demand has fallen faster than production, leaving a surplus of 17,392 metric tons through August after a deficit in 2014. China accounts for about 40% of both global supply and demand, and tightening environmental regulations may be restricting the nation’s lead production and consumption.

Zinc mine closings in store as price at 6-year low

Mined zinc closings are beginning to be announced or discussed as the metal’s price reaches a six-year low. Glencore said it would close 500,000 metric tons of capacity -- one-third of its production and 3.5% of the industry’s global total.

Nystar said low prices could push it to make further cuts after it closed its Campo Morado, Mexico and Myra Falls, Canada mines in 2015. A four-year bear market may come to a head as miners, who have seen large losses, throw in the towel and close significant amount of capacity.

Chinese zinc slab producers drive market to surplus from deficit

China continues to drive global zinc slab output, with more than 4.1 million metric tons produced in 2015 through August. While China’s slab output jumped 11.2% from a year earlier, the global total increased just 6.4% to 9.38 million tons.

China’s rising supply pushed the refined zinc market into a surplus of 207,800 tons from a 2014 deficit, as end-market demand failed to keep pace. Galvanized sheet production, a primary use for refined zinc, was up 5.8%.

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