S&P more positive about nickel, copper
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Both metals have been battered in the past month as US president Donald Trump ramps up a trade war with China.
"Demand fundamentals remain favourable, but the rise of global interest rates and trade tensions between US and China may exacerbate price volatility or hurt medium-term fundamentals," S&P said.
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"Still, we expect GDP growth in the US approaching 3%, in the Eurozone near 2%, 2.5% in Latin America, and 6% to 7% in China while that country adheres to stricter environmental standards.
"These GDP forecasts are beneficial for industrialised metals such as iron ore, copper, nickel, and zinc."
Forecasts for most metals remained unchanged, except for nickel and copper.
Copper had previously been expected to average US$6,400 per tonne this year, but S&P has upgraded that to $6,600/t for the remainder of the year.
The red metal has averaged $6,898.62/t so far this year and last traded at $6,382.75/t.
S&P has lifted its 2019 forecast copper price to $6,800/t from $6,600/t and its 2020 outlook to $7,000/t from $6,800/t.
"Once again, we moved up our price curve for copper, reflecting more consensus around potential deficits in 2019-2020," S&P said.
"Our expectations of global economic growth and consistently strong industrial demand from the largest economies, especially China, will likely put increasing pressure on producers that are having difficulty expanding supply at a faster pace.
"On top of that, potential disruptions from new technologies, such as electric vehicles and other power storage uses, may boost demand beyond our forecast horizon."
S&P expects mine supply to grow by 0% to 2% over the same period.
"This small increase is due to continuing trends of declining grades, environmental issues, and a relatively modest project pipeline," it said.
S&P's nickel forecast is also below the average price for 2018 so far.
It lifted its 2018 price forecast to $13,000/t from $12,000/t, which is still well below nickel's year-to-date average of $13,875.10/t.
Nickel closed at $14,118/t overnight.
Forecasts for 2019 and 2020 were also raised by $1,000/t to $13,500/t and $14,000/t, respectively.
S&P said its forecasts were increased to reflect declining production by Vale, Norilsk and Sumitomo, falling stock levels, and positive Chinese stainless steel production.
On the supply side, analysts noted that any negative action on mines in the Philippines or curtailments of Indonesian export permits could further lift prices.
S&P said the recent rise in nickel to $15,000/t was unsustainable in the next year or so.
"The relatively weak margins of stainless steel producers in China limit the companies' ability to pass on high nickel prices," it said.
"Thus, we think the current nickel price is unsustainable and could pressure steel prices in the short-term because stainless steel production still accounts for about 65% of the first use of nickel.
"We also think that the current spot prices for nickel reflect some degree of speculative bullish sentiments.
"Although the production of electric vehicle batteries have only minimally contributed to global nickel demand (less than 3%), the optimistic forecasts of auto manufacturers have added to the upward price trend."