Citi turns neutral on aluminum and zinc after optimistic targets reached by Investing.com

Investing.com — Analysts at Citi Research in a note dated Wednesday switched to a short-term neutral position after achieving their previously set bullish price targets.

This change comes on the heels of a strong rally in August that saw aluminum and zinc prices rise significantly, aligning with Citi’s bullish near-term forecasts.

Aluminum and zinc posted substantial gains in August, with prices up about 15% from early-month lows.

Aluminum prices rose by about $320 a tonne, coming in just above Citi’s near-term target of $2,500 a tonne. Similarly, zinc rose around $390 a tonne, trading around 5% above its near-term target of $2,800 a tonne.

Despite these gains, Citi opted to take a more cautious approach in the near term. “This reflects our cautious view on the broader LME complex following the volatility in July and August,” analysts said.

Additionally, while the market is largely pricing in a likely Federal Reserve rate cut in September, metals markets remain vulnerable to potential weakening US economic data, fluctuating manufacturing sentiment and uncertainties surrounding the upcoming US presidential election .

Looking beyond the immediate term, Citi maintains a positive outlook for aluminum, anticipating renewed growth through 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 decarbonisation initiatives.

In addition, aluminum is expected to benefit from sustained demand to replace copper with aluminum and the delayed resumption of smelting operations in Europe due to recent market volatility.

Citi notes that while most of China’s smelter restarts have been completed, the risk of supply disruptions remains, particularly due to seasonal factors such as weaker hydropower availability during the winter in the Yunnan region.

Moreover, 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 approach off multi-year highs.

The short-term outlook for Zinc is more mixed, with Citi taking a neutral bearish stance on the prevailing sentiment of weak steel demand and broader macroeconomic uncertainties.

However, the brokerage remains bullish on zinc’s medium-term outlook, 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 shortfall of 187,000 tonnes in 2024, a significant revision from the previously estimated shortfall of 82,000 tonnes.

This shortfall is largely due to supply-side constraints, including recent commitments by Chinese smelters to reduce their use of concentrate in response to shortages.

While near-term performance could be limited, Citi expects zinc prices to rebound in early 2025 as production sentiment improves. The brokerage also expects stronger growth in mining supply in 2025, although this is needed to restore market balance.

However, Citi cautions that supply growth is subject to execution risks, particularly given the zinc industry’s history of struggling to maintain global mine capacity over the past seven years.