Concerns over supplies following the Russia-Ukraine war eased substantially during 2023, but demand concerns came to the fore with aggressive rate hikes led by the US Federal reserve, elevated levels of inflation, fear of economic slowdown and China’s tepid post-Covid recovery.

A large part of this slowdown may already be priced-in. The US and the Euro zone are currently staring at a mild recession as the lagged effects of monetary tightening kick-in.

The US Fed has pivoted interest rates, which means there may be no more rate hikes even as inflation is beginning decline. The question now is: when will the Fed start cutting interest rates? While the decision will be data driven, it is reasonable to believe that it may not happen anytime soon, but most likely towards the end of the second quarter or early third quarter 2024.

Once clear signals of a rate cut manifest themselves, the dollar is sure to weaken. In the second half of 2024, the US and Euro zone are expected to come out of recession. In addition, activities in China are likely to pick up momentum.  Demand for stimulus package may get louder.

All this will make 2024 an interesting year. While concerns over demand will impact the first half and make the market somewhat subdued, accelerated economic activity following the anticipated rate cut in the second half will drive the metals market and lift prices. In other words, 2024 is likely to be a year of two halves.

The global base metals market struggled most part of 2023 for several reasons including challenges faced by the property sector in China. The market has of late found some support in the form of changing sentiment. For one, major central bankers may have ended their rate hike cycle and are expected to start cutting rates by the middle of the year.

Further, the Chinese government has shown intent to prop the slowing economy, especially the construction sector, with adequate financial support. In this backdrop we must crystal gaze into 2024.

Aluminium: China is the most important market to watch. While major countries do not buy from Russia because of western sanctions, China is able to obtain the metal from Russia. This is keeping the prices in check. Demand for aluminium from the electric vehicle (EV) industry is sure to provide a boost to prices over 2024. There’s potential for a recovery towards $2,800 a tonne by the end of the year.

Copper: As a metal of electrification, demand for copper will remain robust in 2024, especially for EVs and power grids. Supply outlook appears somewhat uncertain due to ageing mines in major producing countries even as greenfield and brownfield projects are likely to slowdown in the next 2-3 years. New investments have to flow but gestation period for mine production is long. In 2024, copper demand growth is set to outstrip supply growth. Market price has the potential to rise 8-10 per cent towards $9300/t by end-2024.

Nickel: Indonesia’s class 2 nickel production has risen rapidly and has pulled prices down in 2023 by over 40 per cent. LME inventories are unlikely to rise soon. Nickel can potentially rise to about $20,000/t during 2024.

Zinc: The metal has faced persistently weak demand due to slowdown in steel production following challenges in the construction sector. At the same time, LME stocks have been rising. It is reasonable to expect that the metal may trade at $2700/t towards end-2024.

Precious metals

Gold: The yellow metal gained around 12 per cent in 2023. Inflation and safe haven demand due to geopolitical developments have combined to push prices higher of late. Now, rate-cut expectations are beginning to support. Central bank purchases and a weakening dollar are also supportive, boosting speculative interest. Physical demand in price-sensitive Asia markets — China, India — will be tepid. If global economic growth prospects improve in the second half of 2024, stock markets may overshadow gold. Therefore, investors have to exercise caution and not get carried away by outlandish forecasts of gold prices in the months ahead. By the end of 2024, gold may trade in the $2100-2150 an ounce range.

Silver: The market has been in deficit for five years in a row, yet silver underperformed gold in 2023. The situation is changing though. Green energy transition will boost demand for silver in the years ahead. Electrification, power grids, photovoltaics, 5G networks as also automotive and home electronics industry will drive industrial demand. The metal has potential to rise 15-20 per cent in 2024 and outperform the yellow metal.

The writer is a policy commentator and commodities market specialist. He serves on SEBI-CDAC as an Independent Member. Views are personal. He has no trading interest whatsoever

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