Fundamentals have returned to drive commodity markets, metals analyst Robin Bhar said Tuesday at the Societe Generale LME week annual base metals research breakfast.
"Since the summer we've seen a regime change, fundamentals have returned to markets," Bhar said in a presentation.
Bhar said that before 2008 about 75% of aluminium's price movement could be explained by fundamentals, but that this dropped to 63% "post-Lehman".
However, this year around 80% of aluminium's price movement could be explained by market fundamentals, and as a result base metals markets are no longer so influenced by "risk on, risk off" macro trading.
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"For industrial metals fundamentals are now the driver," Bhar said.
Bhar also said that the current commodity super-cycle is not over.
He said that urbanization, growing populations and a growing middle class in emerging economies will continue, and added that this was not just a China phenomenon but was happening across Asia in countries like India and Malaysia.
He said that populations living in cities would increase from 3.4 billion to 5 billion by 2030 in China.
ALUMINIUM, NICKEL OVERSUPPLY
Bhar said that aluminium and nickel were suffering from oversupply and that as a result Societe General had lowered its price forecast for both metals.
"The aluminium market is plagued by oversupply, structural oversupply," Bhar said. "Despite low prices, continued oversupply and building stocks, production growth show few signs of slowing." Societe Generale expects global aluminium production to increase by an annual average rate of 6.5% in 2013 and 2014.
Likewise, Bhar said that nickel was in "massive oversupply" partly due to the massive growth in Chinese nickel pig iron production.
He did not think Indonesia would implement a full ban on the export of nickel ore in January 2014, and expected a partial ban where the government would implement quotas to try and prompt more downstream investment.
"We see the nickel market remaining in a large surplus, maintaining the stocks ratio at elevated levels and accordingly we have revised downward our annual average price forecast for 2013 and 2014," Bhar said.
Societe Generale is forecasting nickel to average $15,200/mt in 2013, down from a previous forecast of $16,600/mt.
In 2014, nickel is expected to average $15,000/mt.
The bank is forecasting aluminium to average $1,870/mt in 2013, down from its previous forecast of $2,000/mt.
--Greg Smart, firstname.lastname@example.org
--Edited by Jonathan Dart, email@example.com