Compared with precious metal, basic metals are common metals that can be found in plentiful supply. Copper, zinc, aluminum, steel, tin and lead are examples of some of the more popular types of basic metals. The performance of basic metals is an excellent way to watch economic activity around the world, because these are the actual inputs used in manufacturing, construction and production. Companies cannot build their products or expand their facilities without relying on these natural resources.
Trend of Basic Metal
After the financial crisis of 2008, every one of the country strove to move forward the path of rejuvenation. Global basic metals surpluses are declining and leading manufacturing indicators are showing consumption would continue to go up further and this is expected to narrow the gap between the supply and consumption in 2013, said London based Barclays in its market analysis recently.
Basic Metal Price Forecasts
Base Metal-2014 Consensus Price Forecasts
2014 ($/mt) Current Mean Est Low Est High Est
Current Price 2013 Ave ytd Est % From Current Price % From 2013 Ave. ytd Est % From Base Case % From 2013 Ave Est % From Base Case % From 2013 Ave
1,786 1,900 1,905
6,999 7,371 7,016
13,576 15,228 1,544
1,894 1,937 2,037
2,093 2,157 2,246
22,900 22,241 23,269
Source: Consensus Commodity Price Forecast, Bloomberg Industries; “Base Case- Mean, Bear Case-Low Bull Case-High” * As of 11/20/2013
Almost every basic metal except copper is expected by consensus to show a higher average price in 2014 vs. 2013. Zinc is projected to be the best performer, rising 4.9% as more large mines are exhausted, leading to lower supply growth. Consensus expects tin's prices to be the most stable, given that supply from Indonesia remains constrained because of their export ban. And as from the forward contract forecast by the Bloomberg, we expect an all overall growing market except for copper.
Correlation between Basic Metal Market and Equity market
As basic metal market is a leading indicator for the economy like the equity market do, they should have a positive correlation. Historically, higher prices for both equities and metals have implied robust economic growth. Following the bottom in 2009, both asset classes had almost equal price appreciation. Since mid-2011, though, performance for the two has diverged. We believe with the gap between supply and demand decreasing, the metal will catch up the equity market in the following year.
Bottom Price for Basic Metal
Basic metal shares have posted a remarkable decline vs. the overall equity market, registering their lowest relative performance in at least seven years. Concerns about a China slowdown, European weakness, oversupply of mined beginning of a taper of the U.S. Federal Reserve's bond buyback program have cast a bearish pall over mining equities.
2013 is not a good year for basic metal sector. Actually the past 3 years have been rough to the investors and the producers. However, the three-year losing streak for mining stocks relative to global equity markets came to a halt at 3Q in 2013. The change in direction has been driven by a bottoming in metals prices, because miners' delivery on promises to cut costs, sell non-core assets and right-size core operations likely also gave investors confidence to take a harder look at the beaten-down industry.
Improving Economic Situation Improving economic climate indexes in Asia, the EU…