LONDON: The Reuters mid-year poll of metals analysts shows to what extent the collective mood has darkened over the last six months.
Price forecasts for 2012 have been slashed across the board since the January poll.
And so have those for 2013, although the consensus is still that next year will be better than this year for the industrial metals suite traded on the London Metal Exchange.
It wasn't even as if analysts started the year in particularly euphoric mood. After the late-2011 collapse in prices the January poll had already been a pretty sober affair.
The red ink seeping out of the mid-year poll, therefore, reflects both the scale of the price declines already seen and a collective belief that there will be little if any relief over the coming months.
MACRO NOT MICRO
Macro-economic fears dominate the latest poll, specifically the combined impact on metals demand from euro-zone turmoil, fading US recovery and Chinese slowdown.
The message was reinforced by yesterday's mid-year forecasts from the International Monetary Fund (IMF).
The IMF shaved its global growth forecast for next year from 4.1 percent to 3.9 percent, warning that "downside risks to this weaker global outlook continue to loom large."
Micro metals-specific dynamics have been subsumed within the greater gloom.
The tin market, for example, is still almost universally expected to be in supply-demand deficit this year.
That hasn't prevented the median price forecast being cut by 4.4 percent to $21,151 per ton since January.
The median copper price forecast has been reduced by the same percentage to $8,003 per ton.
And that despite a hardening of the consensus it too will record a supply deficit this year. Only one of 18 analysts offering a market balance view expects a surplus, SocGen, to the tune of 70,000 tons.
Indeed, the median market deficit forecast has risen from 101,000 tons in January to 168,500 tons in the mid-year poll, reflecting yet another collective downgrade of production prospects.
No matter. The price forecast downgrade is pretty much the same as for zinc, which just about everyone expects to remain in surplus this year.
As Daniel Brebner, analyst at Deutsche Bank, pointed out, whether a market is in surplus or deficit right now is secondary to the broader risk-on-risk-off flow of capital. "The price is largely impacted right now by perceptions of risk."
RISK-OFF IN H2 2012
And that looks set to remain the case for much of the rest of 2012, judging by the poll's findings. Only two metals, zinc and lead, are expected to see any sort of price improvement in the second half of the year.
The median forecasts of both at $2,041 (lead) and $1,985 (zinc) are higher than actual first-half averages but only very marginally, by $6 and $7 per ton respectively.
That suggests an expectation that both have seen the worst of price declines, albeit with limited bounce potential over the coming months.
Not entirely surprising, since both metals are expected to remain in surplus this year.
The median forecast for lead has shrunk marginally to 58,000 tons from 70,000 tons in January. That for zinc, by contrast, has widened to 325,000 tons from 262,000 tons in January.
No such relief for either nickel or aluminum, which saw median price forecasts slashed by 9 percent and 8 percent respectively since the January poll.
Full-year average forecasts for both are below actual H1 prices, highlighting a general frustration that higher-cost production, particularly in China, is not being curtailed fast enough to prevent a significant build in market surplus.
No-one is expecting anything other than surplus in the nickel market this year.
And only one out of 17 analysts, the perennial light metal bull HARBOR Aluminium Intelligence, is expecting anything other than aluminum surplus.
Underlying such low-ball expectations is a collective view that at a macro level things are probably going to get worse before they get better.
RECOVERY POSTPONED
Metals demand could probably survive both European recession and slow-to-no growth in the US if only China, the world's biggest industrial metals user, stepped up to the mark.
However, there is a realization that there will be no 2009-style shock-and-awe stimulus package from Beijing.
Stimulus this time around will be both smaller in scale and more carefully targeted as the Chinese authorities juggle the need to maintain growth and simultaneously avoid rekindling a commercial property bubble.
The flow-through to metals demand is therefore expected to be less intense and to take longer.
Most analysts seem to be looking for policy traction toward the end of this year or early next year.
As such, median price forecasts for next year are all higher than for this year, ranging from 1.3 percent in the case of copper to 10.2 percent in the case of lead.
But there has still been a collective downgrade of views since January.
Median 2013 forecasts for all the base metals have been slashed in the interim six months.
Lead gets off with a 7-percent cut. Unfancied nickel, expected to record another surplus next year, comes in for the harshest treatment with an 11-percent reduction since January.
Moreover, all next year's median price forecasts are still below average prices last year.
RUNNING WITH THE PACK
So, is that the most likely scenario, a protracted period of low, range-bound pricing stretching into 2013?
Contrarians can draw some comfort from two intertwined features of any such poll.
The first is the propensity of all of us, not just financial analysts, to be overly influenced by current or very recent conditions when forecasting the future. Behavioral scientists call it "anchoring".
The mid-year poll is just a current snapshot of how analysts now perceive next year. That their collective mood should be colored by current events, particularly when these are as momentous as the rolling crisis in the euro zone, should not be surprising.
The second feature of any poll is the tendency for forecasts to cluster, reflecting each analyst's awareness of what his or her peers are saying.
Take, for example, forecasts of the copper price next year.
They range between $7,055 at the low end to $10,000 at the high end, a sizeable 42 percent differential.
Strip out the two highest and the two lowest forecasts, however, and the range shrinks sharply to $7,694 at the low end and $9,259 at the high end. The differential halves to 20 percent.
Given copper's historical volatility, it seems a very conservative range, particularly considering the multitude of potential macro-economic scenarios next year.
After all, the red metal notched up a $6,635-10,190 range in 2011, exceeding the full range of 2013 forecasts even with outliers included.
What this poll really tells us is that metals analysts are currently in gloomy mood and are not expecting much improvement over the next quarter at least.
But whether the projection of current gloom into 2013 is justified is a different matter altogether.
— Andy Home is a Reuters
columnist. The opinions
expressed are his own.
Poll finds analysts in gloomy mood
