The recovery in prices for non-ferrous metals increases the potential for import substitution in Russia. Russian non-ferrous metallurgy is promised a bright future Rising prices for non-ferrous metals

In 2017, the production of non-ferrous metals in Russia remained almost at the level of the previous year, while exports fell by 15%. The most noticeable decline was in the volume of exports of unprocessed aluminum, along with an increase in exports of aluminum products with high added value. Nickel exports also decreased due to the closure of two large plants.

In contrast to the previous period, 2017 became favorable for the development of the non-ferrous metallurgy industry in the Russian Federation - rising demand and prices allowed enterprises to plan and carry out modernization and expansion of production.

According to forecasts, in the medium term, production of non-ferrous metallurgy products will grow, but this growth will be uneven in different groups of non-ferrous metals. The industry will remain export-oriented, however, the dynamics of increasing export volumes will largely depend on the consumption of manufactured products within the country.

Tatyana Dmitrieva

Rising world prices amid shortages

Before prices for non-ferrous metals began to rise, a significant drop was observed in 2015. However, since 2016, prices have increased. In particular, quotes for copper, lead and nickel increased by 20% over the year, aluminum - by 15%. The growth leaders were zinc (+62%) and tin (+50%). The reasons for the growth were expectations of a global economic recovery, positive statistics from China, a shortage of metals in warehouses, as well as the intentions of the new US President D. Trump to direct significant investments into infrastructure construction.

In 2017, the rise in prices for the main groups of non-ferrous metals continued. Thus, aluminum prices by the end of the year exceeded $2,000 per ton (Fig. 1). Moreover, unlike 2016, when the price increase was due to the low base effect, in 2017 the main factor in increasing the cost of non-ferrous metals was the increase in demand for them in the world, especially from China: since the end of 2016, China has been implementing a program to reduce load capacity of aluminum smelters in large cities in the east of the country in order to improve the environmental situation. In this regard, the decrease in the production of non-ferrous metals in China is estimated at 2 million tons; another 5-6 million tons per year can be withdrawn from the market by closing outdated and illegal production.

Rice. 1. Dynamics of world prices for aluminum (LME. Alum), 2015-2018, $ per ton

Source: Finam.ru

Because of this, and also due to increased consumption of the metal in the global automotive, construction, and packaging industries, the global aluminum market, which had been surplus for eight years, became scarce for the first time. According to Rusal, at the end of 2017 the aluminum deficit will be 1.3 million tons, and in 2018 - 1.8 million tons.

A similar situation with prices and the state of the world market is developing in other segments of non-ferrous metallurgy. Thus, copper prices, which by the end of 2017 were in the range of $5.5-6 thousand per ton, are supported by a shortage of copper on the market. On the one hand, it is associated with a decrease in copper production in the world due to a lack of investment in the development of new deposits, on the other hand, with an increase in consumption of this metal, mainly due to a doubling of demand from China. According to experts, the deficit in the copper segment will continue at least until 2020.

The price of zinc in the second half of 2017 reached 10-year highs - more than $3 thousand per ton. According to analysts, the zinc deficit on the world market is 220-230 thousand tons. Due to the rapid growth of consumption, this market will remain scarce, despite the projected increase in production.

Different production dynamics

In general, the Russian non-ferrous metallurgy at the end of 9 months of 2017 showed a decline in production by 1.4% compared to the same period in 2016. As RIA Rating analysts emphasize, this was primarily due to the closure of two enterprises in 2016 (nickel production in Norilsk and lead in Vladikavkaz), which was related to environmental requirements and not to market conditions. At the same time, production in different segments of the industry was different.

Aluminum production in Russia has stabilized at the level of 3.6-3.8 million tons in recent years without any pronounced positive dynamics (Fig. 2). Over the first 9 months of 2017, production increased by only 0.3%. At the same time, favorable forecasts for the global and Russian markets give Rusal the basis to plan to expand aluminum production.

Rice. 2. Dynamics of aluminum production in Russia, 2009-2017.

Thus, the company has already decided to complete the construction of the Taishet aluminum smelter (TAZ) with a capacity of 430 thousand tons per year (first stage). Rusal expects to begin construction of the plant in early 2018 and put it into operation in 2020. Also, at the end of 2018 - beginning of 2019, it is planned to put into operation the second line of the Boguchansky Aluminum Smelter (BAZ), which will increase its productivity to 300 thousand tons per year. Decisions on the construction of the third and fourth lines of BAZ, as well as on expanding the capacity of the Khakass Aluminum Smelter (KHAZ 2) will be made later, depending on the development of the market situation.

The copper industry demonstrated record growth rates: copper output in Russia increased by 8.2% in January-September 2017. Including Norilsk Nickel increased copper production by 9.2%. At the end of 2017, the company plans to produce 377-387 thousand tons of copper versus 360 thousand tons in 2016. In the future, the company will increase production by reaching the design capacity of the Bystrinsky GOK: it is expected that the enterprise, launched in 2017, will process 10 million tons of ore by 2019.

The second largest player in the Russian copper market, the Ural Mining and Metallurgical Company (UMMC), on the contrary, slightly reduced copper production, which is associated with a decrease in copper content in the ore used from 1.6% to 1.2% and a corresponding decrease in capacity productivity. However, over the next 3-5 years, UMMC intends to increase the annual volume of copper production from the current 350 thousand to 370-380 thousand tons. The production growth is planned to be achieved through additional ore beneficiation, expansion of mining and processing of tailings and slag.

The third largest production volume, the Russian Copper Company (RMK), plans to increase production volume by 5% in 2017 compared to 2016, and by 2022, after reaching full capacity of the Tominsky GOK in the Chelyabinsk region, the construction of which has already begun, to reach first place in copper production in Russia.

Zinc production in January-September 2017 also increased noticeably: in Russia as a whole - by 5.3%, including at the Chelyabinsk Zinc Plant (CHZ) - by 4.7%, at the Vladikavkaz Electrozinc plant - by 5, 4%. UMMC, which owns both plants, plans to modernize CZP production to reach a level of about 200 thousand tons of zinc per year (currently about 175 thousand tons), as well as develop the raw material base through the construction of the Korbalikhinsky mine in the Altai Territory.

Another segment of non-ferrous metallurgy, where there was a significant increase in production, was the cobalt industry - over 9 months of 2017, production volume increased by one and a half times. This happened due to the creation of the first and so far only production of high-grade electrolytic cobalt in Russia at the production site of the Kola Mining and Metallurgical Company (KGMK) of the Norilsk Nickel group.

A decrease in production occurred in the nickel and lead segments. Due to the closure of the old Norilsk Nickel plant in Norilsk, nickel production decreased by 22.3% over the first 9 months of 2017. The company also plans to close another outdated production facility located in the village of Nikel, which processes 450-500 thousand tons of copper-nickel concentrate, after 2019. It is planned to compensate for the closure of plants by increasing production at KMMC.

In May 2016, to reduce the environmental impact, lead production was stopped at the Electrozinc plant of UMMC in Vladikavkaz. Because of this, the production of this metal in the country decreased by 12.3% over the first 9 months of 2017. It is expected that after modernization of production, which will reduce the impact on the environment, the plant will be restarted.

Reasons for the decline in exports

In general, about 75% of the volume of non-ferrous metals produced is exported from Russia. Export is carried out mainly to the EU countries, the USA and Turkey. The largest volumes of exports are aluminum, nickel (first place in the world) and copper (second place in the world), titanium, tin and gold occupy a prominent position, and metals such as tungsten and molybdenum are imported.

Over the 10 months of 2017, the total export of non-ferrous metals from Russia, according to customs statistics, decreased by 15%. At the same time, the dynamics of export volumes were different in different segments.

Thus, the volume of exports of unprocessed aluminum amounted to more than 2.5 million tons, which is 13.6% less than the same period in 2016. Export of raw nickel amounted to 14.5 thousand tons, which is 28% lower than the level of 10 months of the previous year. Exports of refined copper and unprocessed copper alloys over the same period, on the contrary, increased by 9.5%, to 468.4 thousand tons. Due to higher prices, income from exports of aluminum and copper increased by 0.7% and 44.2%, respectively, and nickel fell by 20.6%.

If we evaluate the dynamics of exports of all groups of Russian non-ferrous metals through ports, then in the last three years export volumes have remained stable at a level slightly above 3.5 million tons, without any pronounced positive dynamics (Fig. 3).

Rice. 3. Dynamics of Russian exports of non-ferrous metals through Russian ports, 2011-2017.

As can be seen from the above data, the reduction in the export of non-ferrous metals is primarily due to a decrease in the volume of exports of aluminum and nickel. And if the drop in nickel exports is directly related to the reduction in production due to the closure of two plants, then the decrease in aluminum exports is influenced by a larger number of factors.

As the Aluminum Association explained to MP, the decrease in exports of raw aluminum is primarily due to an increase in the domestic production of products with high added value and their export.

“The export of primary aluminum is being replaced by the export of high-tech products. The growth in domestic consumption observed in Russia also contributes to the decline in export volumes. Primary aluminum production volumes in 2017 remained at the same level, but domestic consumption increased by 13.3%, and non-raw material exports of aluminum semi-finished products increased by 16.5%, to 290 thousand tons,” noted Valentin Trishchenko, Chairman of Aluminum associations. It is expected that in the future this trend will not only continue, but also intensify. According to the Aluminum Association, the export of Russian aluminum products has enormous potential for growth - the total volume of exports by 2021 could increase from the current 180 thousand tons to 600 thousand tons. For such developments, manufacturers need to ensure high quality of exported products, be able to attract working capital financing for exports, including through government programs to support the industry and cooperation with strategic partners that ensure the promotion of Russian products in foreign markets.

Another factor influencing export dynamics is government policy aimed at stimulating the consumption of non-ferrous metals within the country. Thus, in 2015, the “Action Plan to Stimulate Demand for High Process Process Aluminum Products for 2016-2017” was approved. In particular, in 2017, almost 20 years after the ban, the Ministry of Energy of the Russian Federation allowed the use of aluminum alloys in electrical wiring of buildings and structures. Experts say this decision opens up new prospects for the use of aluminum and new markets, which until recently were held back by outdated restrictions.

Also, based on the results of work to ensure the protection of the Russian market from low-quality imported aluminum rims, a draft resolution of the Government of the Russian Federation “On licensing the import of aluminum wheels” was developed. Its adoption should ensure protection of the domestic market from the import of counterfeit products and appropriate import substitution. In addition, in 2017, projects for the construction of bridges and carriages made of aluminum and its alloys were developed.

Russia, being a net exporter of aluminum, imports about a third of the volume of domestic consumption of this metal. The main import items include value-added products - sheets, plates, rods, profiles, foil and other household products. According to experts from the Analytical Credit Rating Agency (ACRA), the lost income of Russian companies due to imports amounts to about 16 billion rubles per year. According to the Russian Ministry of Industry and Trade, the development of high-process aluminum production can increase the country's GDP by 600-700 billion rubles, or 0.5%.

Rusal plans to replace imported aluminum products on the domestic market in the near future, and in the future begin to supply them for export. Thus, the company, along with other participants of the Aluminum Association, is implementing projects to create three technological valleys - in the Krasnoyarsk Territory, in the Volgograd Region and in the Republic of Khakassia. The main types of products that are being prepared to be produced in these valleys will be rolled products for aviation and shipbuilding, components for mechanical and automotive industries, profiles and ingots for the construction industry, cables, wire rods, and batteries.

At the same time, a factor complicating the export of aluminum products from Russia is currently high duties on the part of importing countries. Thus, the import duty into EU countries on aluminum foil is 7.5-10%, on sheets and plates for mechanical engineering, tape for packaging production - 7.5%, building profiles and structures - 6-7.5%, etc. .

Production and export forecast

Despite the expected increase in consumption of non-ferrous metals within the country, in the medium term the Russian industry will maintain a significant export orientation. The largest share of exports will continue to be in the aluminum (76-77%) and nickel (86-88%) segment. In the copper segment, the share of exports is projected to decline from the current 65% to 61% by 2021. A significant increase in zinc production with limited potential for domestic consumption will allow producers to increase the share of exports from today’s 9% to 39% by 2021 (Table 1).

Table 1. Production, consumption and export of non-ferrous metals in Russia in 2015-2021, thousand tons

Date: 01/16/2018

Views: 8440

The end of 2017 was quite calm for the global and Russian metallurgical markets. At the end of the year, producers of ferrous rolled metal products informed the market about the upcoming rise in prices for a number of metallurgical products, in particular construction fittings, hot-rolled sheets and cold-rolled sheets. A preliminary estimate of the increase in the cost of reinforcement will be 10% of current prices, and sheets may increase in price by up to 8%. The price increase will be a response to the general trend of increasing prices on the world market.

Metal suppliers today are focused on export supplies. The January volume of orders on the foreign market fully covered Russian ferrous metal suppliers with orders, thereby reducing the volume of supplies to the domestic Russian market. Anticipating an even greater price increase in February, suppliers are already preparing the market for this. This situation is favorable for suppliers, but the consumer of rolled metal, who expected a seasonal reduction in the price of reinforcement and rolled steel, is dissatisfied with the current situation.

Chinese steel producers are keeping export prices higher by an average of $35 per ton. Turkish steel producers, due to constant demand, do not have time to meet market needs, thereby attracting imported steel, in particular Russian production. The European market is also in positive dynamics.

The price level of the global metallurgical market increased significantly in 2017. On average, sheets increased in price from January to December by 20%, fittings and long products - 30%, scrap metal - 25%. This market situation supported the profitability of metallurgical companies and attracted additional funds into the industry.

China market

An important decision of 2017 was the closure of many small metal producers in China. The country's market received a shortfall of 40 million tons of reinforcement. Large producers have not yet managed to close this gap, and China's metal export market has declined by more than 30 million tons compared to 2016. Today, the Chinese authorities are further tightening environmental laws and putting pressure on the country's manufacturing sector, which in turn will affect the cost of the country's steel products. Today it is too early to make long-term forecasts about the cost of Chinese rolled steel; most likely, events associated with changes in metal prices will begin after the traditional New Year celebrations in China, namely in March 2018.

Turkish market

The Turkish steel market also attracted increased attention last year. In 2017, Turkey became one of the leaders in terms of economic development in the world. GDP growth in Turkey reached 11.1% by mid-2017. Today, the demand for steel in the country fully satisfies Turkish metallurgists and actively attracts steel imports into the country. This growth of the real sector is due to active government regulation in the country. The proposed system for developing investments and stimulating large businesses by reducing the tax burden, introducing customs benefits for purchased foreign-made engineering sector products and reducing social payments has proven to be very effective. The total volume of investments in major investment projects exceeded $18 billion in 2017. The government of the country supports small businesses no less effectively. For small businesses there is a system of credit benefits, such as deferred interest payments, preferential loan restructuring systems and other banking products.

Russian market

The Russian metallurgical market, like the entire real sector of the Russian economy, was dominated by increased control of the financial sector by the state. Throughout the past year, there has been a “cleansing” of the banking sector. All this has added a certain constraint to the development of the real sector. The state sets new tasks for the implementation of large-scale projects that are significant for the country’s economy, requiring the accumulation of significant material assets. Last year, such projects included the construction of a railway bypassing Ukraine and the construction of a bridge to Crimea, the construction of new stadiums for the upcoming World Cup, the opening of new factories and the commissioning of new energy capacities, the laying of pipelines for the oil and gas sector, and the construction of new roads. and reconstruction of existing ones.

The economic development prospects for 2018 will become clear after the Russian Presidential elections are held in March 2018. Most likely, until this moment we should not expect any special fluctuations, both in the entire Russian economy and in the metallurgical market in particular.

Summing up the development of the metallurgical market in 2017, we suggest that you familiarize yourself with the graph of price dynamics in Russia for A500C rebar, hot-rolled sheet, and other items over the last six months of 2017 presented on the Price Monitoring portal. The dynamics of rolled metal prices most clearly reflects the processes taking place in the country's steel market.

Graph 1. Price dynamics for A500C valves in Russia

Graph 2. Dynamics of prices for hot-rolled sheets in Russia

The past 2017 on world markets was marked by an increase in the cost of industrial metals. Metals used in the production of batteries for electric vehicles - lithium (+26.67%, up to $285 per ton) and cobalt (+128.79%, up to $34.25 per pound), used in production, especially stood out. Prices for these metals are expected to continue to rise in the near future.

Last year, nickel (+23%, up to $12,652 per tonne) and copper (+28%, up to $7,150 per tonne of copper) showed noticeable growth amid growing demand from China. The beginning of 2018 on world markets is marked by a weakening dollar and growth in commodity assets. The growth potential in industrial metals remains: nickel, aluminum and copper in 2011 were 1.5-2 times more expensive than current levels. The growth driver may be US President Donald Trump's plans to introduce import duties on aluminum and steel as a fight against Chinese competitors. However, the growth rate in 2018-2019 may slow down against the backdrop of a recovery in the production of the listed metals.

China is currently the largest consumer of steel. But, according to expert analysts, next year there will be a decline in economic growth in this country. And this will have a bad effect on demand.

How will metal prices change in 2019?

In recent years, metal prices have increased by 30%. Therefore, the question of the price of this resource for next year is no less relevant. Due to sharp jumps in metal prices, the state ordered the Ministry of Industry and Trade to sort out this situation. The meeting, which was held among metallurgists, went quite well. On their part, a promise was made to ensure a continuous supply of metal.

Metal prices are constantly increasing. This happens due to the dollar exchange rate, because it is impossible to predict. Expert analysts do not rule out its increase to 70-80 rubles next year, and such a turn of events cannot have a beneficial effect on the Russian economy.

Influence of external factors

During the economic crisis, manufacturers increased their income from exports and reduced production costs by up to 70%. Thus, if producers and buyers can come to a common agreement, prices will decrease significantly and a large turnover will be realized, which will benefit both parties to the transaction, as well as the state budget.

Scrap metal of non-ferrous metals is highly valued at collection points and there are a number of justified reasons for this. Non-ferrous metals are very specific; their production takes a lot of effort and time and requires expensive equipment.

The cost of non-ferrous metals is influenced by the fact that they are made from complex ores containing many different substances. For example, nickel mining is inextricably linked with the production of cobalt, which is a by-product in the technological process.

Also, do not forget that the extraction of non-ferrous metals is a very difficult matter, since the ore contains microscopic amounts of them. For example, one kilogram of copper ore contains only 50 grams of copper, and this is one of the largest indicators. A kilogram of tin ore contains about one gram of pure tin, and naturally the price of tin on the market is very high.

Another factor that determines the cost of non-ferrous metals is that most deposits in Russia are depleted, and ore is delivered from abroad, which significantly increases the cost of the final product. Moreover, the cost of non-ferrous metals is rising every year, and price increases show no sign of slowing down.

Forecast for 2019

In 2019, strong growth in precious metals prices is not expected: the tightening of the Fed’s monetary policy, the growth of the American economy and the demand for risky assets at the beginning of the year are not in their favor. A return in demand for protective assets is possible if the risks of the global economy materialize (tension on the Korean Peninsula, the Middle East, bubbles in the credit market and real estate market in China, overbought American stock market, stalled reforms of US President Donald Trump). It is expected that gold will continue to trade in the range of $1250-$1350 per troy ounce, silver – in the range of $15-$18. In our opinion, platinum has the greatest growth potential among precious metals, which is already cheaper than palladium and may well replace the latter in autocatalysts.

Prices for base metals rose significantly in 2016, with some mining commodities posting growth rates of up to 50% over the summer. But by the end of the year quotes corrected, without returning, however, to the lows of the end of 2015.

The jump in prices was largely triggered by a low base: at the end of 2015, commodities fell to multi-year lows. Thus, according to the New York Mercantile Exchange, gold fell to a five-year low, to $1,055 per ounce. The price of zinc fell to six-year lows, to $1,461 per ton. Iron ore fell to a six-year low, to $40 per ton. The most significant drop was recorded in nickel and molybdenum quotes. According to London exchanges, nickel fell by almost half, to $8.6 thousand per ton, and molybdenum - to $11.5 thousand per ton.

By mid-2016, mining commodities had skyrocketed in price.

Thus, according to the London Metal Exchange, by July gold rose by 26.7%, to $1,366 per ounce, and by the beginning of August, silver had risen in price by one and a half times, to $20.63 per ounce. But by the end of 2016, the market rolled back, and the difference with prices at the end of 2015 was not so striking: gold is trading at $1,138 per ounce (+6% since the beginning of the year), silver at $15.88% (+14%) .

In 2016, silver outpaced gold, which is traditionally considered a protective asset by investors during periods of market instability. At the same time, silver reserves of world funds reached a record high: investments in silver ETFs on June 16 updated a historical maximum and amounted to 650.5 million ounces.

A price rally also occurred in the non-ferrous metals market: over the year, aluminum increased by 19%, to $1,739 per ton, nickel by 24%, to $10,565/t, rare earth molybdenum jumped in price by more than a quarter, to $14,750/t.

But the record holder of the year was iron ore. Since the beginning of 2016, it has increased in price by 85%, to almost $80 per ton. And if we compare it with the December minimum of 2015, when iron ore fell to $38.3/t, the commodity price has more than doubled, by 110%.

Traders expect strong steel demand in 2017, driven by China's construction sector and infrastructure projects in Asia. At the same time, steel production in China typically declines in recent winter months ahead of the Chinese Lunar New Year holiday. Given the seasonality in iron ore demand, “it is difficult to say how long this rally will last and how far it can go, as the price rise is not supported by fundamentals and is largely technical,” Sublime Info analyst Liu Xinwei said in a call. In addition, the rhetoric of the Chinese authorities on environmental issues suggests that many steelmaking facilities may be closed due to restrictions on air emissions.

The most successful non-ferrous metal in 2016 was zinc: over the year it increased by 67%, to $2,586 per ton. The jump comes amid the closure of several mining mines in 2015 and a decline in production of the metal, which is heavily used in the steel industry.

The future favors metals

The rise in metal prices will continue in 2017, predicts the banking group Citigroup. According to the bank's forecasts, the market will be able to cope with the surplus of commodities that brought it down earlier.

An upward trend is also predicted for copper, zinc, coal, iron ore, gold and other metals. Growth is also promised. The price increase is due to an increase in prices for coking coal, which is used in steel production. According to the BCS forecast, coal prices will rise to $285 per ton in the first quarter of 2017. This will lead to a further increase in steel prices: in particular, export prices for hot-rolled steel FOB Black Sea may increase by 15%, to $550 per ton.

“Overall, for commodities, the oversupply that was fueled by high prices in the first decade of this century has finally been balanced,” Citigroup said in a note in the report. A similar opinion is expressed at Goldman Sachs.

For the first time in four years, Goldman Sachs is recommending investors bet on higher prices in the commodity market.

According to the bank's analysts, commodity markets are entering a cycle of rising prices. “Regulatory-related production constraints will benefit oil, coking coal and nickel markets in the near term,” Goldman Sachs said in a note to its forecast.

After the election of a Republican as US President, traders hope that his election promises to increase infrastructure projects in the US will be fulfilled. Large-scale infrastructure projects in China are also giving investors hope that commodities will be in demand.

However, it is not without risks. The commodity market will remain subject to high volatility, largely due to the potential impact of government policies on Asia's largest economy. In addition, the plans of the US Federal Reserve Service () to increase interest rates, if implemented, may lead to an exodus of traders from commodity assets to the US currency.

Large-scale projects are a thing of the past

But despite the rise in metal prices and positive forecasts for 2017, one should not expect large investment projects from mining enterprises. With total shareholder returns falling since 2010, most market participants have long been trying to reduce costs and increase productivity, the authors of the report by The Boston Consulting Group (BCG) note.

According to Bloomberg Intelligence, capex for the top 10 mining companies fell to $62.5 billion in 2015, down from $104 billion in 2013 and $82.5 billion in 2014.

According to Ivan Glasenberg, chief executive officer of global trader Glencore, investment in fixed assets is unlikely to return to previous levels in the near future, as producers are afraid of re-inflating the overproduction bubble.

Investors will be cautious and will not increase capital expenditures in production. “I don’t see a global trend towards increasing capital costs,” noted the head of the World Gold Council, John Mulligan, in an interview with Gazeta.Ru.

Profitability of mining companies has fallen to its lowest level in more than a decade, the report shows. But some manufacturers were able to offset the negative impact thanks to low energy prices and depreciation of national currencies in the countries where their production is located. Thus, Russian companies, “unlike international competitors, have shown a fairly high level of profitability in the last five years: in the range of 40-50% EBITDA for producers of non-ferrous and precious metals and more than 20% EBITDA on average for the industry,” explained. Director in the Moscow office of The Boston Consulting Group.

In 2017, the trend towards tightening financial discipline will continue: metallurgists will strive to increase productivity, reduce debt levels and introduce innovative information technologies in operating activities.

The production of cable and wire products is directly related to the state of the copper and aluminum market. According to the consulting company GFMS Copper Survey, 38.7% of mined copper and 13% of aluminum are used in electrical engineering and energy. Monitoring trends specific to this sector of the mining industry helps to navigate the situation in a timely manner and build a competent development strategy. However, this year it has been difficult to understand what to expect from the copper and aluminum markets, since expert forecasts have sometimes been quite contradictory. prepared an analysis of the copper and aluminum market - 2016 and analyzed forecasts for the market for these non-ferrous metals for 2017.

Copper: from balance to deficit and price rally

At the end of 2015, the American investment bank BofA-Merrill Lynch gave a rather optimistic forecast for the prospects for the raw materials market for 2016, in particular, noting that balance was returning to the copper market.

The International Wrought Copper Council (IWCC) forecast for the current year called for a shortage. Experts stated that in 2016, global demand for copper could exceed production by approximately 140 thousand tons. When analyzing the current situation and forecasting, analysts associated the main risk factors with the Chinese market, as the world's largest consumer of copper.

What did reality show? According to the International Copper Market Research Group (ICSG), the deficit of this metal on the world market in June 2016 amounted to 83 thousand tons, compared to a 69 thousand tons deficit in May 2016. At the same time, there was a deficit in the domestic Chinese copper market in the amount of 65 thousand tons. Copper production in the first half of 2016 increased by 4.5% compared to the same period in 2015 and amounted to 9.821 million tons. Refined copper production in the world in the first half of 2016 amounted to 11.491 million tons (+2.9% compared to the same period in 2015), world consumption - 11.797 million tons (+5.1% compared to the same period in 2015).

As for copper prices, the forecasts of a number of analysts announced at the beginning of the year were far from reality. For example, experts at the investment bank Goldman Sachs expected a decline in the price of copper by more than 10% (from $4,500 to $4,000/t) by the end of 2016 due to continued weak demand for metals in China. Analysts from the financial conglomerate Barclays also predicted a decline in the price of copper, believing that, despite the fact that the price of copper ended the first quarter of this year with growth, it would fall in price to $4,180/t in the fourth quarter of 2016. In their opinion, “the price rally is "The market has been volatile as the seasonal surge in economic activity in China has not been sufficient to offset high levels of metal inventories and the weak medium-term economic outlook."

However, these forecasts did not come true. The price of copper has remained at $4,700-4,800/t since June due to the release of positive economic data on the Chinese economy, as well as the continuing reduction in the supply of metal on the market. In November, it reached its maximum for the entire 2016 - $5,334/t. Although this is not the limit. So, on November 11, 2016 on the LME (London Metal Exchange, specializing in non-ferrous metals) it amounted to $5,926/t. The rise in copper prices at the moment is influenced, according to some analysts, by the victory of Donald Trump, who is expected to invest in US infrastructure, in particular in bridges, roads and airports. Analysts at Citigroup Inc. (a global diversified financial holding company) and Societe Generale (a financial conglomerate) linked the rise in copper prices to speculative trading in China.

Copper is in demand, which suggests investors have confidence in the growth prospects of a number of countries, including China and the United States. What to expect from the copper market in 2017? According to data published by the IWCC, copper demand in 2017 will reach a long-awaited balance. According to the organization’s forecasts, this year the copper deficit will be 120 thousand tons, and in 2017 it will drop to 60 thousand tons.

Aluminum: the market will be scarce

Let’s remember how 2015 ended for this sector of the economy, and what forecast analysts gave for the dynamics of the aluminum market for next year. The volume of the surplus was more than 370 thousand tons. The main reason for the imbalance was the decrease in global demand for aluminum and the growth of exports from China, which led to a decrease in prices to the lows of 2009. The RUSAL company at the end of last year predicted that in 2016 The global aluminum market may return to a state of shortage, and this will lead to an increase in prices and premiums for this metal, and the spot price will exceed $1,600/t. According to the calculations of the company's management, China can reduce metal emissions to the foreign market, which will have a positive effect on the overall situation on the market.

As reality has shown, already in January-February of this year this forecast began to come true. In the first quarter, primary aluminum production in the world amounted to 13.778 million tons, which is 1.6% less than in January-March 2015. Of this volume, China accounted for 7.17 million tons, which is 5.1% less year on year (according to the International Aluminum Institute). The decrease in global aluminum production continued in the second and third quarters of this year, amounting to 2.141 million tons in August versus 2.148 million tons (excluding China). In China, aluminum production increased in August 2016 and amounted to 2.713 million tons compared to 2.659 million tons in June.

Regarding aluminum prices, the forecasts of many experts were similar and quite accurate. Since the beginning of 2016, the price of the metal has increased by 3%; in April it rose by 12%. From May to August, prices fell from their record jump in April, which analysts say was due to increased supply of the metal from Chinese producers in response to rising costs since the start of the year. But since September we have again seen a steady increase in aluminum prices.

What do analysts predict for 2017? If the excess supply in 2016, according to updated forecasts, is expected to be 172 thousand tons of aluminum, then in 2017 the market may face an aluminum deficit of 631 thousand tons if the current rate of production reduction is maintained. Analysts at UniCredit, one of the largest European financial institutions, expect a further increase in aluminum prices: in 2017 - $1,800/t, in 2018 - $1,900/t. Less optimistic are specialists from the CRU analytical group, who in their market review, published at the end of September this year, expressed the opinion that at the beginning of next year the price of aluminum will be below $1,500/t.