Base Metals: A complex with two minds – TDS

With the base metals complex recording an impressive rally in the second half of 2017, which saw prices jump nearly 25 percent, an increasing number of market participants have begun to question whether the metals rally has gotten ahead of the fundamentals, explains the research team at TDS.

Key Quotes

“A bout of supply disruptions this summer, a resilient Chinese economy, and the electric vehicle "buzz" have all contributed to the recent optimism for the complex.” 

“Considering that supply disruptions have largely abated, the still bloated inventories should cap major additional rallies across several metals. With the lofty economic growth expectations for the Middle Kingdom at risk of not materializing and the electrification-linked optimism fading somewhat, we expect the complex to come under modest selling pressure before the year's end.” 

“Notwithstanding the relative near term negativity, the combination of synchronized global growth, a weakening dollar and docile CB tightening which should keep real rates remaining low certainly bodes well for the metals markets as 2018 unfolds. With a favorable macroeconomic setting, TD Securities projects that the base complex is set to perform well. However, the fundamental outlook across the complex is quite varied which suggests some metals will do better than others.”