Citi Research Adjusts Outlook on Aluminium and Zinc

Neutral Stance on Short-Term Prices

Analysts at Citi Research, in a note dated Wednesday, shifted to a neutral stance on aluminium and zinc in the short term after achieving their bullish price targets.

August Rally

This change follows a robust rally in August, where aluminium and zinc prices surged, aligning with Citi’s optimistic forecasts. Both metals saw substantial gains, with prices rising by approximately 15% from earlier lows in the month.

• Aluminium Prices: Increased by around $320 per tonne, exceeding Citi’s near-term target of $2,500 per tonne.
• Zinc Prices: Rose approximately $390 per tonne, trading about 5% above the near-term target of $2,800 per tonne.

Cautious Outlook

Despite these gains, Citi adopted a cautious approach, reflecting their concerns about broader LME complex volatility observed in July and August. The analysts noted the potential risk from a likely Federal Reserve rate cut and softening U.S. economic data.

Long-Term Outlook

Looking further ahead, Citi maintains a positive outlook for aluminium, predicting renewed upside by the fourth quarter of 2024 and into early 2025.

• Projected Average Price for Aluminium: $2,800 per tonne in 2025, driven by moderate recovery in global manufacturing and demand from decarbonization initiatives.
• Aluminium is also expected to benefit from copper-to-aluminium substitutions.

Supply Chain Dynamics

Citi highlights the supply side challenges, particularly in China, where most smelter restarts are completed, but risks from seasonal factors like hydropower availability persist. The global cost curve continues to support prices, with marginal costs projected to rise between $2,100 and $2,200 per tonne due to high alumina prices.

Zinc Market Overview

The near-term outlook for zinc is more mixed, with a neutral-to-bearish stance due to weak steel demand and macroeconomic uncertainties.

• Medium-Term Outlook: Optimistic, with a price prediction of $3,100 per tonne by the first quarter of 2025.
• A projected global refined zinc market deficit of 187,000 tonnes in 2024, largely due to supply constraints from Chinese smelters.

Conclusion

While short-term performance may be limited, Citi expects zinc prices to rebound by early 2025 as manufacturing sentiment improves and mine supply growth strengthens, though risks remain regarding execution in the zinc industry.