Metals and minerals price index of the World Bank rose by 4 per cent in the first quarter following a 24 per cent surge in 2017 due to strong global demand and various supply bottlenecks. After peaking in mid- February, all metals prices fell in March amid rising trade tensions between the United States and China, rising inventories, and weak consumption in China (See the graph- Metal and mineral prices). However, aluminum prices surged in April following US sanctions on Rusal, the world’s second largest aluminum producing company. Nickel prices have risen on fears that sanctions could be extended to the Russian producer Norilsk, which generates 9 per cent of global nickel supply.
Meanwhile, China is expected to continue to play a key role in global metals markets as it accounts for more than 50 per cent of world metal consumption. The country is expected to continue to reform its mining and processing sectors, while a transition to a consumption-led economy is expected to slow growth in metals demand.
Individual metal trends
Nickel prices jumped 15 per cent in the first quarter on strong growth in stainless steel production, some disruption to supply, and falling inventories. While nickel pig iron production is rising in China and Indonesia, the rest of the world is struggling to produce nickel.
Iron ore prices leaped 13 per cent on increased steel output in China, which mainly reflects a government imposed closure of illegal scrap-based steel capacity. This led to stronger iron ore demand by steel producers, particularly for higher quality material. Tin prices climbed 7 per cent in the first quarter, and although it sold off recently, it was the most stable metal price during the past year. Despite very low stocks, supply continued to expand from Myanmar, particularly for higher quality exports, mostly destined for China. Zinc prices rose 6 per cent, and have more than doubled from their lows in January 2016, mainly due to lack of mine supply and strong growth in demand to galvanise steel. Mine closures due to resource exhaustion (Australia and Ireland) and voluntary cutbacks (Australia and United States) in 2015/16 limited refined zinc production and caused inventories to plunge to critically low levels. In addition,
Price projections and risks
Metals prices are projected to increase 9 per cent in 2018. Iron ore prices are projected to decline 11 per cent due to oversupply, which are more than offset by increases in all base metals prices, led by nickel (up 30 per cent), due to growing demand and supply tightness.Upside risks to the price forecast include more robust global demand, as well as production shortages. Supply could be curtailed by slower ramp-up of new capacity, tighter environmental constraints, sanctions against commodity producers, rising costs, and policy action that limits output and exports, notably in China. Downside risks include slower growth in China, risks of higher than expected production—including the restart of idled capacity—as well as easing production restriction policies in China, and an escalation of trade tensions.
Source: Commodity Markets Outlook, World Bank