JPMorgan Chase recently released a research report stating that the bank remains bullish on base metal prices for the year 2025. The report suggests that China's recent stimulus policies could lead to a significant increase in demand for base metals, coupled with a recovery in metal demand in other regions. The bank believes that global demand will put pressure on the supply growth of metals such as copper, aluminum, and zinc, which remains constrained.
JPMorgan's macroeconomic baseline scenario anticipates a soft landing, expecting interest rates to decline to levels close to those before the pandemic by the end of 2025, without a recessionary interruption during the ongoing expansion. The bank continues to forecast that the Federal Reserve will cut rates by another 50 basis points in November, followed by a 25 basis point cut at each subsequent meeting until the federal funds rate drops to 3% in the second half of 2025. With a slowing yet resilient labor market and declining interest rates, it is expected that manufacturing and industrial production outside of China will emerge from a two-year slump.
The report indicates that the upside risks to Chinese demand in 2025 are becoming apparent, with the recent easing measures undoubtedly the most comprehensive policy actions since 2015, clearly aimed at restoring market confidence.
At the same time, despite an increase since August, investor positions in copper and aluminum are still far below their peaks in May.
JPMorgan expects that manufacturing outside of China will begin to recover next year, and the refining market will tighten, believing this will once again prepare investors for a larger reallocation to the metals market. However, the base metals market still faces the test of the U.S. elections; if Trump is re-elected as president and quickly focuses on increasing tariffs, it could cause a sharp bearish impact on base metal prices.
Copper: Supply Gap May Continue Price Increases Next Year
The report states that the price surge of copper in the second quarter of 2024, driven by investors, had a fundamental impact that is only now beginning to be digested. As the refining market tightens, the bank remains bullish on copper prices for 2025, with the impending supply gap once again raising concerns.
According to the report, driven by compensation for delayed purchases in the second quarter of 2024 and a tightening scrap copper market, China's massive inventory accumulation is beginning to significantly decrease. Despite being dragged down by the construction industry, the bank expects China's copper demand to grow by about 4% year-on-year this year and 2.4% year-on-year in 2025, with recent stimulus measures bringing upside risks to demand in 2025.
Overall, the bank expects that global refined copper demand growth will once again maintain a stable level of about 3% year-on-year in 2025.On the supply side, the Democratic Republic of Congo (DRC) remains one of the strongest engines for copper mine supply growth, with copper mine supply expected to increase by 1.4% year-on-year in 2024 and by 2.6% in 2025, which also depends on the recovery of production in Chile.
JPMorgan Chase forecasts that by 2030, the global copper market will face a supply gap of about 4 million tons. Alternative materials and conservation of use may accelerate in the medium term, but the bank believes this is not enough to fill the long-term market deficit alone. In addition, last year, only about 450,000 tons/year of new copper projects were approved, and concerns about whether the copper supply gap can be filled in time continue to intensify.
Aluminum: Demand risks are basically balanced
The research report indicates that despite the still very weak demand in Europe and the United States, the global aluminum market does not show obvious relaxation.
This year, China's 3.8% year-on-year demand growth and the 4% year-on-year growth in Asia outside of China have largely supported the bank's global demand forecast of a 2.6% year-on-year increase. China's supply growth this year has been faster than expected, but it has now basically reached its production capacity limit of 45 million tons.
The bank said that with China's production capacity limited, the next step in aluminum supply growth (on the current basis of increased production) is not very clear. The supply growth in Europe and the United States largely depends on the resumption of production capacity. If demand exceeds the bank's expectations in the next few years, Europe's idle production capacity will still be the main temporary solution, but this may require sustained higher prices to promote the resumption of production capacity.
JPMorgan Chase expects China's total aluminum demand growth to slightly slow down to a year-on-year increase of 2.7% in 2025, but due to a 7% increase in the use of secondary recycled aluminum, the growth rate of primary aluminum demand is expected to slow down more significantly to a year-on-year increase of 1.5%. Therefore, the basic concerns about aluminum supply shortages are still just assumptions until there is stronger demand stimulation in the market, especially in the world market outside of China.
The research report believes that the demand risks for global aluminum are balanced. The current higher alumina prices have set a higher cost bottom line for aluminum, but this situation may change as more refining capacity comes online by 2025.Zinc: Both Supply and Demand are Sluggish, Yet Prices Remain High
The research report indicates that sluggish demand has not substantially tightened the refined market despite the decline in zinc supply. However, the risks for the next quarter still tend to favor further tightening.
JPMorgan believes that the continued underperformance of zinc mine supply has led to a reduction in refined zinc production this year, although supply constraints are expected to start easing next year. The bank forecasts a 1.5% year-on-year decline in global refined zinc supply for this year, with China's supply expected to decline by 4% in 2024.
The bank anticipates more zinc concentrate to arrive in 2025, which is expected to strengthen the supply to zinc smelters. Although a stronger supply can meet the bank's expectations for a recovery in demand, zinc prices are expected to remain high, averaging close to $3,000 per ton next year, as the risks will tend towards a more tense supply-demand balance if supply growth is delayed.
Nickel: Supply Expected to Slow Down
The research report states that the nickel market is still struggling to find a new balance. So far this year, the surplus of Class 1 nickel is evident, with inventories having risen by more than 50%.
JPMorgan believes that nickel prices will not significantly fall below $16,000 per ton. The current price is only slightly above the 75th percentile of the global cost curve, which becomes quite steep below $17,000 per ton, with about 10% of the cumulative supply facing losses for every $1,000 decrease in price.
The report indicates that the growth in global refined nickel production may significantly slow down due to shutdowns, but it is expected to continue to rise this year and next year due to ongoing growth in Indonesia and China.Precious Metals: Increasing Supply Pressure
The research report indicates that gold seems to be exhibiting its characteristic bullish tendency once again, especially as real interest rates decline, coinciding with the ongoing interest rate cut cycle by the Federal Reserve. J.P. Morgan forecasts that inflows of ETF funds will drive up the price of gold, approaching the bank's peak target of $2,850 per ounce by 2025. Concurrently, the bank anticipates a target price for silver of $37 per ounce by the end of 2025.
The report suggests that the erosion of precious metal supplies is ongoing, with the basket price of precious metals hovering in the upper quartile above total cash costs, leading to increasing supply pressures.
The bank believes that platinum requires higher prices to ensure future supply and predicts that it will reach $1,200 per ounce by the third quarter of 2025. However, recession remains a greater risk for precious metals.