Metals like zinc and nickel could retain gains due to possible supply side pressures by end of calendar year but others like aluminium and copper might slip into negative due to increased supplies, says Robin Bhar of Societe Generale.
"Copper supplies are expected to increase as more mines open up, while in aluminium idle capacities are expected to come on board," Bhar said in an interview to CNBC-TV18.
He has a positive outlook on gold with prices seen touching USD 1,300 per ounce on seasonal or festive buying in India. However, with US Presidential elections and a Federal Reserve rate increase expected in December, the longer term outlook for gold prices remains uncharted, he says.
Below is the transcript of Robin Bhar’s interview to Manisha Gupta on CNBC-TV18.
Q: What is your sense on what the markets seem to be making out of the Chinese data because on one side, we have seen them on the weaker side. The trade data was weak, you also have seen the private investments at record lows. The only thing that seems to be doing well really is the state firms and they continue to expand. Do you think that is enough to keep the base metals space higher?
A: We think it is unlikely to provide enough of a compensation to the overall structural weakness that we are seeing in China. Of course, the trade data was a worry, but perhaps, we should not be too concerned with just one month’s worth of data. Let us see what the coming months are going to produce. But we think that the rebound in the Chinese economy will fade over time because fiscal stimulus and infrastructure spending probably have had the maximum impact, so we do continue to see China posing a negative backdrop to industrial metals.
What worries us most is the gradual depreciation of the Chinese currency not just against the dollar, but against a basket of currencies and this seems to have accelerated since the yuan became the member of the International Monetary Fund’s (IMF) Special Drawing Rights (SDR) basket on October 1. So, there is enough worries to cap industrial metals although the fourth quarter should see an uptick in physical buying. Question is will it be enough to support the downside.
Q: So, what is your sense? With the kind of buying or the positive returns that we are standing in, in sense of metals, do you see this sector closing the calendar year with those kind of gains?
A: We will see those gains held on to, particularly for some of the smaller metals where it is not a question of demand, but constraints on supply and here we are talking about zinc, nickel, tin and lead where there is tightness in supplies and we would think that those metals could largely hold on to their gains. But for the two larger metals, aluminium and copper, we could see those splitting into negative territory because more supply is expected particularly for copper with mines ramping up and with aluminium, we expect the Chinese to restart a significant amount of idle capacity as well as bringing on new smelting capacity in the second half of this year and also going into 2017. So, a bit of a mixed picture.