Scotiabank Says Base Metals Will See Strongest Support in Q2

Due to factors like tightening supply and increasing demand, base metals like copper and zinc are expected to experience the strongest pricing environment within the metals complex, according to a report from Scotiabank.

The major bank released its quarterly global outlook report earlier this week, and it includes a section focused on the future of commodities.

In the report, Scotiabank touches on how base metals are experiencing some major benefits from booming economic growth as raw materials increase in demand.

“Within the broadly buoyant metals complex, base metals are expected to experience the strongest fundamental support as advanced manufacturing picks up and mine supply becomes increasingly tight following years of mining industry belt-tightening,” the report reads.

It goes on to highlight zinc as a metal that will see the most “fundamental support” due to a current lack of supply. Scotiabank predicts that zinc prices will average $1.60 per pound through 2018 and 2019, but will eventually simmer back to $1 per pound after “the next wave of mine supply” comes online.

On the copper front, Scotiabank predicts that the market will register a supply deficit in 2018, which would be the first time since 2010.

“While we believe that the market will require further years of deficits to burn through off-exchange inventories before prices rally further, our outlook sees steady supply shortfalls in each of the next 5 years that grow larger as the mine supply pipeline continues to empty,” it states.

The report forecasts that copper prices will average $3.10 per pound in 2018, and will pick up speed to $3.25 in 2019.

It predicts that while bulk commodities are prospering at the moment, they will weaken as China’s steel output slows down. With regard to precious metals, Scotiabank anticipates that they will stay rangebound due to the contrast of a weakening US dollar and rising global rates.

The report also focuses heavily around the market for oil, which the bank says has tightened. WTI crude prices are now predicted to average $65 per bbl this year, up from $57 in Scotiabank’s January outlook, and could reach $68 per bbl in 2019, up from a previous prediction of $60 per bbl.

As of Thursday (April 19) afternoon, copper sat at US$3.15, while zinc was at US$1.45.

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Securities Disclosure: I, Olivia Da Silva, hold no direct investment interest in any company mentioned in this article.