BASE metals should benefit from a steady improvement in the global economy but gold prices risk declining further to average $US1200 per ounce in 2014, according to Natixis.
In its metals review for the second half of 2013, the French investment bank said base metal markets were likely to firm up once developing countries began to catch up with growth in the US economy but overcapacity would still be a substantial problem.
Nickel and aluminium were flagged in particular as likely to experience price falls in the coming years due to market surpluses.
Gold, meanwhile, is tipped to fall as interest rates rise and the need for safe haven investment dissipates.
Natixis tracked a 20% fall in the price of the yellow metals since the beginning of the year due to Cyprus’ gold sell-off in a European bailout package and the US Federal Reserve’s move to taper quantitative easing.
The US influence, however, emerged as the dominant factor, with gold prices expected to drop to lows of around $1170/oz over the coming 6-12 months and an average of about $1250/oz over 2015.
Besides the influence of tapering quantitative easing in the US, the report found further outflows from exchange-traded products would place additional downward pressure on gold.
“We do not expect to see a repeat of the rapid outflows that occurred during the first half of the year but with 1950 tonnes of gold still held by physically backed ETPs, there remains substantial scope for further divestment,” Natixis said.
“Such gold outflows would lead to an increase in the supply of the metal at the expense of what has been a substantial source of demand in recent years.”
In copper, prices were forecast to average $7200 per tonne in 2014 and $6500-7000/t in 2015 as new supply moves the commodity into a lengthy period of oversupply.
The report said nickel was expected to experience “another year or more of pain” as rising global output, including the expansion of Chinese nickel pig iron production, spurred the abandonment of existing operations.
“The rest of the global nickel industry finds itself caught between those long-term investments, which were inspired by 2007’s all-time high nickel prices and the new reality of low-cost nickel pig iron output,” it said.
“Under these circumstances, continued excess supply appears likely to maintain downward pressure on nickel prices until existing producers begin to cut back more aggressively and/or more new projects are delayed or abandoned.”
Nickel prices were estimated to average $14,250/t in 2014 and $15,000/t in 2015.
In 2014, aluminium was forecast to trade at $1900/t while lead and zinc were expected at $2350/t and $2175/t respectively.
Natixis said spare Chinese capacity was now sufficient to help regulate extremes in supply and demand after a rapid growth period up until 2011 created a substantial destabilising factor in metal prices.
The Hong Kong exchange’s purchase of the London Metal Exchange was also indicated as helping the Asian giant moderate its influence over base metal prices.
Natixis said that in a macro sense, the world economy was shifting away from growth models based on credit and forced to take a different perspective after the global economic crisis.
In China, the shift in priorities has included efforts to rein in excess capacity in its heavy industries.