Commodities | Mar 08 2023
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A glance through the latest expert views and predictions about commodities: outlooks for lithium, iron ore, and zinc.
-Lithium price corrects, down -30% since the new year
-Iron ore prices to rise amid Chinese property market improvement
-Zinc deficit to reverse as smelter losses moderate over the coming year
By Danielle Austin
Electric vehicle sales could drive some lithium price recovery in coming months
Lithium has had a challenging start to the new year as prices in China have declined -30% since early January. Morgan Stanley attributes the sizeable price correction to stalling demand, highlighting the market appears divided on whether prices have further to fall or can stabilise moving forward.
The broker feels it is unlikely electric vehicle sales will shrink over the year, and that this trend should provide a platform for modest lithium price recovery. However, it does not anticipate a repeat of the enormous growth momentum experienced last year.
Even despite the recent decline, lithium pricing remains at an historically elevated level. While analysts at Citi expect lithium prices could remain under pressure in the near term, they also sense lithium prices will remain higher for longer, with the possibility of recovery in the second quarter of 2023.
Citi anticipates pressure remaining over the first quarter, but expects restocking by battery producers to help ease pressure from the second quarter. This sees Citi reduce its three month lithium carbonate price forecast to US$40,000 per tonne from US$60,000, and its six to twelve month price to US$50,000 per tonne from US$55,000.
With the huge spread between market price and costs of production, Citi warns even small changes in supply/demand balances could have large impacts on pricing.
Chinese property sales spark upgrades to iron ore prices
Recovery in the Chinese property market could prove a key driver for even higher iron ore prices, according to Goldman Sachs. This broker is anticipating a significant deficit to emerge in the seaborne iron ore market in the first half of 2023, with a recent and ongoing recovery in the Chinese property market driving anticipation of a recovery in steel volumes.
Goldman Sachs notes property sales lead starts are typically an indicator of higher steel demand ahead.
Increased demand comes while Chinese steel mill iron ore inventories are at their lowest level since 2016, and Goldman Sachs anticipates this could drive a -43m tonne deficit in the period. The broker has increased its iron ore price forecasts to US$120 a tonne for the year, from a previous US$100 per tonne. On a three months horizon, the price is expected to rise as high as US$150/t.
Within its Australian iron ore coverage, the broker continues to prefer the more diversified Rio Tinto ((RIO)), whose Pilbara and Canadian iron ore businesses produced 324m tonnes and 10m tonnes respectively in 2022, and pure play producer Champion Iron ((CIA)), which produced 7.9m tonnes in 2022 but could double that with the ramp up of its Bloom Lake Phase II. Both are rated as Buy, with Rio Tinto added to the Conviction List.
The broker is Neutral-rated on BHP Group ((BHP)), Mineral Resources ((MIN)) and Deterra Royalties ((DRR)), and Sell-rated on Fortescue Metals ((FMG)) given its trading premium.
Smelter losses that drove zinc shortage in last year to moderate moving forward
According to Macquarie, zinc projects equating to as much as 560,000 tonnes could be approved this year, following a deficit that emerged last year.
This compares to around 680,000 tonnes of new zinc supply approved in 2022. A large portion of new supply is attributed to the Ozernoye, Gamsberg and Kipushi projects. Similar supply had been approved in 2021.
The broker expects two large projects to contribute to new supply, these being the Dairi asset in Indonesia and the Hermosa asset in North America, with the remainder of supply spread across various geographies. Macquarie expects both high inflation and lower prices could pose risk to project approvals.
Smelter losses are expected to moderate in 2023, after underperformance in 2022, expected to result in a more balanced market. The broker anticipates a surplus will emerge in 2024, which should reverse by 2028 when a supply gap should start to open.
Macquarie sees no shortage of available tonnes, pointing out potential for 3.5m tonnes of zinc per annum to have opened up by the end of the decade.
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