Metals Magnifier：China’s appetite is evolving

Commodities Research 26 March 2014 Metals Magnifier China’s appetite is evolving •The diverse start to the year for base metals reflects the variety of fundamentalstories, with the more China-leveraged metals, such as copper, suffering an early-year sell-off. We think the extent of the decline in copper prices is overdone sincemicro trends have likely bottomed, though macro concerns and stock overhangtake some of the potential upside off our Q2 price forecast. China is now the biggestrisk (in both directions). Our economists believe that the risks of a sharp andsustained drop in growth in years to come are not insignificant, but they also believethat Q1 14 will mark the nadir for Chinese growth this year and forecast a strongsequential pick-up over the next few quarters. The government is already employingpolicy tools such as infrastructure spending, which should be positive for demand.With that, we think risk/reward of buying copper at these lows is attractive.•We have revised our gold price forecast for 2014 up to $1250/oz from $1205/oz,after taking into account gold’s year-to-date performance. That said, we have notchanged our overall view and still believe that its next move will be lower. Palladiumhas similarly outperformed so far this year, hitting several year highs, due topossible supply concerns. However, we still expect market fundamentals to pushpalladium even higher by year-end.•This year, China became the world’s largest gold consumer, building on 2013’sblockbuster year. But since much of the strength in buying in 2013 can be attributedto price-sensitive buying, the question is, can Chinese gold consumption continue togrow? In our view, the answer is yes, albeit at a slower pace y/y, which we address inthis month’s focus.Aluminium US$/t Copper US$/t Lead US$/t Nickel US$/t Tin US$/t Zinc US$/t Gold US$/oz Silver US$/oz Platinum US$/oz Palladium US$/oz Forecasts 2014 1,850 7,125 2,263 15,000 26,000 2,138 1,250 19.0 1,539 768 Q1 1,750 7,100 2,200 14,750 25,000 2,000 1,290 19.0 1,450 730 Q2 1,850 7,300 2,200 15,000 25,500 2,100 1,250 18.0 1,520 750 Q3 1,850 7,100 2,300 15,000 26,500 2,200 1,200 18.5 1,575 780 Q4 1,950 7,000 2,350 15,250 27,000 2,250 1,260 20.5 1,610 810 2015 2,150 8,000 2,513 17,000 30,000 2,400 1,150 17.0 1,650 850 Cycle averages 2,130 6,950 2,700 18,200 18,000 2,975 1,125 16.0 1,850 650 Source: Barclays ResearchGayle Berry +44 (0)20 3134 1596 gayle.berry@barclays.com Sijin Cheng +65 6308 6320 sijin.cheng@barclays.com Suki Cooper +1 212 526 7896 suki.cooper@barclays.com Christopher Louney +1 212 526 6721 christopher.louney@barclays.com Kevin Norrish +44 (0)20 7773 0369 kevin.norrish@barclays.com Nicholas Snowdon +1 212 526 7279 nicholas.snowdon@barclays.com www.barclays.com PLEASE SEE ANALYST CERTIFICATIONS AND IMPORTANT DISCLOSURES STARTING AFTER PAGE 70 Barclays | Metals Magnifier CONTENTS China Gold Demand: China’s gold appetite is evolving ..................................................................... 3 Consumption indicators ......................................................................................................................... 11 BASE METALS ................................................................................................. 14 Aluminium ................................................................................................................................................. 15 Copper ........................................................................................................................................................ 19 Lead ............................................................................................................................................................. 24 Nickel ........................................................................................................................................................... 29 Tin ................................................................................................................................................................ 33 Zinc .............................................................................................................................................................. 35 PRECIOUS METALS ........................................................................................ 40 Gold ............................................................................................................................................................. 41 Silver ............................................................................................................................................................ 45 Platinum ..................................................................................................................................................