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Base metals ready to charge back?

Despite base metals being heavily sold off in the past month or so, it is nearly time to buy.
Base metals ready to charge back? Base metals ready to charge back? Base metals ready to charge back? Base metals ready to charge back? Base metals ready to charge back?

Marex Spectron global head of market analytics Guy Wolf said it was unequivocally still a bull market in base metals.

"It has been 11 months since we said it was time to take money off the table," he said in a note this week.

"Since then, we have been looking for the correct risk-reward opportunity to again take a more aggressive positive stance. We believe that moment is now here."

Wolf believes the bear market ended in mid-2013 and was followed by a transitional phase.

"The bull market then began in late 2016. It wasn't immediately obvious to me that it was anything more than a short gamma move at first but as we went through Q1 2017, it became increasingly clear that we were in a 'new paradigm' and the only challenge at that point was to await the inevitable 'dip' that would allow the buying opportunity," he said.

Wolf said the differences in trading patterns and the underlying data was so different to the last bear market that he couldn't see any justification that we were heading back to that.

He said the current dip provided better potential than previous dips with the data providing the fuel for a "sustainable rally".

"It is now at the point where it would be reckless not to turn positive," Wolf said.

"Certainly, there is nothing we can see that is incrementally negative. We see enough incrementally positive factors to want to pull the trigger now.

"The time to bet on a bull market is when everyone else doubts it and we are finally being given that opportunity again."

Meanwhile, Morgan Stanley this week said it favoured zinc out of all the base metals.

"On a six-month view, copper's still dependent on supply disruption for upside to its balanced market; aluminium's still oversupplied; nickel's exposed to falling stainless steel price and abundant low-grade ore; while zinc's in deficit and about to enter peak demand season," analysts said.

Zinc has been the worst-performing base metal this year, down by 20.5%, compared to copper, down by 13.1%, and nickel, down by 6.2%.

Morgan Stanley believes that zinc has been oversold and will rebound through the current half.

"Our view holds that zinc's downturn is a case of too-bearish-too-soon, supported by short-term market signals: a large cash three-month backwardation, falling global exchange inventory (July-70,000t), low spot TCs ($25/t) all point to a tight physical market and the potential for a price rebound in 2H18," it said.

"On a longer-term view, we favour nickel and copper."