Citi Research Shifts to Neutral Stance on Aluminium and Zinc in Short Term
Citi Research analysts have adjusted their outlook on aluminium and zinc in the short term, moving to a neutral stance after achieving their bullish price targets. This change follows a strong rally in August, with both metals experiencing significant price increases aligning with Citi’s optimistic forecasts.
In August, aluminium and zinc prices surged by around 15% from their lows earlier in the month. Aluminium prices reached just above Citi’s near-term target of $2,500 per tonne, climbing by approximately $320 per tonne. Similarly, zinc saw a 5% increase above its target of $2,800 per tonne, with prices rising by about $390 per tonne.
Despite these gains, Citi is taking a cautious approach in the near term due to volatility in the LME complex in July and August. The market is anticipating a Federal Reserve rate cut in September, but metals markets remain vulnerable to potential softening in U.S. economic data, fluctuating manufacturing sentiment, and uncertainties surrounding the upcoming U.S. presidential election.
Looking ahead, Citi maintains a positive outlook for aluminium, expecting renewed upside by the fourth quarter of 2024 and into early 2025. The brokerage forecasts an average price of $2,800 per tonne in 2025, driven by a moderate cyclical recovery in global manufacturing and continued demand from decarbonization initiatives.
On the other hand, zinc’s near-term outlook is more mixed, with Citi adopting a neutral-to-bearish stance due to weak steel demand sentiment and broader macroeconomic uncertainties. However, the brokerage remains optimistic about zinc’s prospects in the medium term, projecting a price of $3,100 per tonne by the first quarter of 2025.
Citi suggests that the global refined zinc market will face a deficit of 187,000 tonnes in 2024, mainly due to supply-side constraints such as Chinese smelters reducing concentrate usage in response to shortages.
While near-term performance may be limited, Citi expects zinc prices to rebound by early 2025 as manufacturing sentiment improves. The brokerage also anticipates stronger mine supply growth in 2025, although this is crucial to restoring market balance. However, Citi warns that supply ramp-ups are subject to execution risks, given the zinc industry’s history of struggling to maintain global mine capacity in recent years.
In conclusion, investors should be mindful of the cautious approach taken by Citi Research in the near term for aluminium and zinc. While there are positive outlooks for both metals in the medium to long term, factors such as economic data, manufacturing sentiment, and supply constraints should be considered when making investment decisions.