NEW YORK Improving market fundamentals, such as accelerating demand growth and a slowdown in output, means 2014 could potentially be a positive year for base metals, Barclays Capital Plc said in its quarterly Global Outlook report Dec. 9.
Next year is likely to mark the end of a cyclical phase of "structural surplus" that has seen most base metals stuck in oversupply since 2007-08, Barclays said.
"Markets such as aluminum and lead are expected to move into deficit, while surpluses in nickel and zinc are set to shrink dramatically," the London-based bank said. "Although there is still plenty of inventory overhanging the industrial metals markets, we do not think that will prevent prices from rising as underlying fundamentals improve."
Demand is the key driver of the trend, along with "a combination of production cuts (aluminum and nickel), declining output from established mines (zinc) and a slowdown in investment (copper)" that indicate a peak in supply growth at some point in 2014, Barclays said.
Nickel output, which Barclays said grew 10 percent year on year in 2013, "is expected to fall to a third of that level in 2014." The bank cited depressed prices that have led to cutbacks from numerous producers, as well as the impact that Indonesias ore export ban, due to take effect in January, is expected to have on Chinas nickel pig iron sector.
It also identified aluminum supply trends that were "evolving swiftly" after a period of structural oversupply that has seen output expand by an average of 7.3 percent thus far this decade. "If producers do go ahead with all the production cuts that have been announced, the aluminum market balance will shift into 459,000-(tonne) deficit in 2014" compared with the banks previous mid-2013 forecast of a 1.2-million-tonne surplus.
"Even in copper, the one exception, where we expect supply to grow faster than demand, the surplus next year is likely to be very modest," the bank said.