Investing.com – Citi Research analysts switched to a neutral stance on the near-term in a note on Wednesday, following the realization of previously set bullish price targets.
This move follows a robust rally in August, which saw aluminum and zinc prices rise significantly, in line with Citi’s optimistic short-term forecasts.
Aluminum and zinc both posted significant gains in August, with prices rising about 15% from their lows earlier this month.
Aluminum prices rose about $320 per tonne, reaching just above Citi’s short-term target of $2,500 per tonne. Zinc also rose to around $390 per tonne, about 5% above the short-term target of $2,800 per tonne.
Despite these gains, Citi has chosen to take a more cautious approach in the short term. “This reflects our cautious view on the broader LME complex following the volatility in July and August,” the analysts said.
Furthermore, while the market is largely pricing in a likely Federal Reserve interest rate cut in September, metals markets remain vulnerable to possible weakening in US economic data, fluctuating sentiment in the manufacturing sector and uncertainties surrounding the upcoming US presidential election.
Looking beyond the near term, Citi maintains a positive outlook for aluminum, anticipating a renewed upward trend in the fourth quarter of 2024 and early 2025.
The brokerage forecasts an average price of $2,800 per tonne in 2025, driven by expectations of a moderate cyclical recovery in global production and continued demand from decarbonization initiatives.
In addition, aluminum is expected to benefit from continued demand for aluminum replacement of copper and the delayed resumption of European smelter operations due to recent market volatility.
Citi notes that while most smelter restarts in China have been completed, the risk of supply disruptions remains, mainly due to seasonal factors such as weaker hydropower availability during winter in the Yunnan region.
In addition, the global cost curve, which has provided strong price support in recent years, is expected to continue to do so, with marginal costs likely to rise to between $2,100 and $2,200 per tonne as alumina prices near their highest levels in several years approaching.
The near-term outlook for Zinc is more mixed, with Citi taking a neutral to bearish stance due to prevailing weak sentiment in steel demand and broader macroeconomic uncertainties.
However, the brokerage remains optimistic about the medium-term prospects for zinc and expects a price of $3,100 per tonne by the first quarter of 2025.
Citi suggests the global refined zinc market will face a deficit of 187,000 tonnes by 2024, a significant revision from the previously estimated deficit of 82,000 tonnes.
This shortage is largely due to supply-side constraints, including recent commitments by Chinese smelters to reduce concentrate use in response to shortages.
While near-term performance may be limited, Citi expects zinc prices to recover in early 2025 as production sentiment improves. The brokerage also expects stronger mining supply growth in 2025, although this is necessary to restore market balance.
However, Citi cautions that ramping up supply is subject to execution risks, especially given the zinc industry’s track record of struggling to maintain global mining capacity over the past seven years.
