Portfolio

‘Minor correction likely, but prices to stay hot’

Gurumurthy K | Updated on January 12, 2018 Published on February 12, 2017

Global demand will be key, says Rahul Prithiani, Director, CRISIL Research



After six years of continuous fall, the sharp reversal in the base metal prices took the financial market by surprise in 2016. Can the good run continue in 2017? BusinessLine spoke to Rahul Prithiani, Director, CRISIL Research, for his views. Excerpts from the interview:

How has the fundamental picture changed for base metals? Does it favour a further rally in prices? What is the outlook for 2017?

There is a possibility of some minor correction from the higher price levels seen last year. But on a year-on-year basis, metal prices may stay marginally higher. The overall global demand scenario will continue to remain a key factor in determining the prices. At the moment, by and large, the demand outlook remains a bit of a question mark, especially that of China.

In our view the demand-supply scenario remains weak as we are in an oversupply kind of scenario. The demand is expected to remain tepid. However, the shutdown in production capacities will continue to play out and provide some support to prices.

How do you see the impact of Donald Trump’s huge infrastructure spending plan on metal prices? Is it already priced in the market?

We need to see what the actual plans on the ground are, in terms of implementation. What is known today is only the big picture. Based on the actual plans and the time frame to execute the same, the demand will evolve. At the moment, the rally that has to happen on the back of positive sentiment is already over. So now, on practical terms, the actual size of the plan and its execution will determine prices.

What are the commodities that can benefit from Trump’s plan?

Steel can benefit from the measures to improve US infrastructure. Another sector which will also need a watch is automobile. Aluminium can get the upper hand if the US auto sector gets a boost from Trump. Investments in the power sector to strengthen US infrastructure would support copper. So, steel, aluminium and copper are likely to benefit markedly from the new US President’s proposed plans.

How is the dynamics going to change between China and the US? Will the focus turn more towards Trump or will China continue to remain the price driver for the metals?

Being the world’s largest consumer of metals, clearly it will be China which is going to drive the entire metal market in terms of demand. So any demand slowdown in China will be very critical for metal prices. The US is unlikely to offset demand slowdown in China.

What is the outlook on Chinese consumption?

In the case of steel, demand was up by 2 per cent last year. But this year, demand is expected to remain flat since some of the stimulus provided last year may not be available this time around. But in the case of aluminium, Chinese consumption is expected to increase between 3.5 per cent and 4 per cent this year.

Is there a threat of supply surging when shutdown mines resume operations?

The shutdown story is different for each case. Some shutdowns related to climate are starting to come back. At this point of time, some of the players who are on the margin are likely to open up and supply is likely to increase. There will be an increase in supply in coking coal because of which a sharp correction in prices from $300 to $150 was triggered. In copper and zinc also, we see supplies coming back due to which there could be some pressure on prices.

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