The average annual gold price is expected to slump by 21% in 2013‚ to $1‚225 an ounce‚ from an expected $1‚550/oz this year and an actual $1‚572/oz in 2011 and $1‚227/oz in 2010‚ French-based investment banker Natixis said in its quarterly metals review on Friday.
In contrast to the expected drop in the gold price‚ platinum group metals (PGM) prices are expected to rise‚ with Natixis forecasting a rise to $1‚700/oz from $1‚560/oz for platinum‚ while palladium is forecast to average $750/oz from $650/oz.
Among the base metals‚ copper continues to exhibit the strongest fundamentals‚ with exchange stockpiles falling to just one week of global consumption.
Supply is still struggling to catch up with demand‚ with problems of falling ore grades‚ resource nationalism‚ industrial unrest and energy security all contributing to an anaemic increase in global copper output.
Despite the weak global economy‚ restocking in China is driving a strong increase in apparent demand. Without an economic recovery‚ copper prices will struggle to push higher‚ but if underlying economic conditions begin to improve‚ a significant rally in copper prices remains a distinct possibility.
Natixis forecast an average copper price of $8‚250 a tonne in 2012‚ rising to $8‚750 a tonne in 2013.
Although western producers have made efforts to reduce aluminium output‚ Chinese supply continues to grow‚ spurred on by cheaper electricity and the introduction of new smelting capacity. Oversupply is therefore likely to remain a central theme in the global aluminium market.
An increase in price may be precipitated by the Indonesian interim ban on exports of unprocessed raw materials‚ effecting a squeeze from bauxite upwards.
Conversely‚ ever-increasing physical premiums may exert further downward pressure on London Metal Exchange (LME) prices.
Natixis’s central scenario is for aluminium prices to average $2‚000 a tonne in 2012‚ followed by a modest increase to $2‚250 a tonne in 2013.
The lead market has been exhibiting schizophrenic behaviour‚ Natixis says‚ with strong growth in mined output accompanying stagnation in finished metal production. Part of the reason is that lead’s cyclically defensive properties have been undermined by the mild northern hemisphere winter in 2011-12‚ resulting in widespread weakness in demand for lead-acid batteries.
With demand growth expected to return later this year‚ Natixis expects lead prices to edge upwards‚ forecasting an average price of $2‚000 a tonne in 2012‚ followed by $2‚300 a tonne in 2013.
The nickel market is undergoing fundamental structural change‚ with an increase in supply from both the Philippines and a number of major international mining projects offsetting an abrupt halt in Indonesian nickel ore exports.
Against this backdrop‚ weak demand from the stainless steel industry and falling energy prices have combined to push nickel prices to three-year lows.
With supply conditions deteriorating during the second half of the year and demand expected to improve‚ Natixis would expect nickel prices to improve very gradually‚ averaging $17‚250 a tonne in 2012‚ followed by $19‚000 a tonne in 2013.
Similar to lead‚ the zinc market has experienced a period of rapid mine supply growth alongside a fall in finished metal production. With construction weak and vehicle manufacturers switching from galvanised steel to aluminium alloys‚ zinc’s fundamentals have not been good.
Pro-growth policies across the developing world are expected to begin to turn this around‚ but with substantial excess capacity and abundant stockpiles‚ any rise in zinc prices will be very slow to materialise.
Natixis forecasts an average of $1‚950 a tonne in 2012‚ followed by $2‚100 a tonne in 2013.
Natixis says that in these uncertain times‚ both its upside and downside scenarios have the potential to be quite extreme.
On the downside‚ the spectre of a potential collapse in Europe looms large‚ as risks surrounding a Greek exit from the euro or a full-blown Spanish bail-out are high.
The US needs to face up to its own fiscal cliff later this year‚ says Natixis‚ with debt ceiling worries to follow soon after.
Across the developing world‚ although policies are becoming increasingly supportive for growth‚ the depth of the current economic hole may yet surprise the market.
These dangers are clearly downside risks for the price of base metals and PGMs‚ but they also offer the prospect of a further round of quantitative easing from the Fed and a return to the use of gold as the market’s preferred safe haven.
On the upside‚ the shift to pro-growth policies across the developing world has the potential to boost demand for base metals significantly.
Although less shock-and-awe than the measures implemented in 2009‚ the Chinese stimulus package is likely to require substantial use of raw materials within the plethora of major investment projects now being unveiled across the country.
For metals such as copper‚ where the market is still in deficit‚ this hints at potentially significant increases in price‚ although for those base metals in surplus‚ demand might have to rise substantially to push prices aggressively higher.
While PGMs and silver would benefit from growth in the automotive sector and the rapid roll-out of solar power‚ gold prices could be put at significant risk if Chinese growth tempted investors to abandon the metal in favour of more productive investments. - I-Net Bridge