I. Copper : Limited vertical space, increased market volatility.

　　In 2016, copper was the worst-performing base metal on the market. At one point in January, the LME copper price fell below $4,300 per ton—the lowest level in the past decade. Since then, international copper prices have remained stubbornly low, hovering between $4,500 and $5,000 per ton, while domestic copper prices have fluctuated between 35,000 and 38,500 yuan per ton. However, driven by Chinese factors and the Trump effect, both international and domestic copper prices began to rise rapidly after November, successively breaking through the key thresholds of $5,000 per ton and 40,000 yuan per ton, and reaching as high as around $6,000 per ton and 50,000 yuan per ton at their peak. By year-end, prices had retreated somewhat, settling at approximately $5,500 per ton and 45,000 yuan per ton. For the entire year, the average settlement price for LME copper was $4,860 per ton, down 11.6% from the 2015 average but up 18.7% over the course of the year. Meanwhile, the average settlement price for SHFE cathode copper was 38,210 yuan per ton, down 5.8% from the 2015 average, yet it rose by 26.0% over the year—a gain that significantly outpaced the increase in the international market.

　　 Looking ahead to 2017:

　　From the demand side, China is the world’s largest consumer of copper, with more than 30% of its copper consumption going into power transmission. According to the State Grid’s “13th Five-Year Plan,” the construction of ultra-high-voltage transmission networks will accelerate in the coming years, which will undoubtedly provide some support for the growth of domestic copper demand. However, as a key sector accounting for over 10% of total copper consumption, driven by incentives such as reduced purchase taxes and fees, China’s auto sales from January to November 2016 rose by 9.5% year-on-year, maintaining a relatively high growth rate seen in recent years. Against the backdrop of stabilizing oil prices, worsening traffic congestion, and the expiration of purchase incentives, the automotive sector’s room for further growth in copper demand in 2017 will be limited.

　　 On balance, the growth rate of global and Chinese refined copper demand in 2017 is expected to be roughly the same as that in 2016.

　　From the supply side, in 2017, global newly built and expanded mines will continue to release copper production, though at a significantly reduced scale compared to 2016, thereby slowing the pace of deterioration on the supply side. In 2016, thanks to the commissioning of several large-scale projects—including the Las Bambas copper mine under China Minmetals Resources, the Sentinel copper mine under First Quantum, and the Cerro Verde copper mine under Freeport-McMoRan—global copper concentrate (metal content) supply increased by approximately 800,000 tons. However, in 2017, no major new copper mining projects are expected to come online globally, and the incremental supply of copper concentrate (metal content) is forecast to shrink to around 200,000 tons. As a result, the overall growth rate will fall to below 1.5%, a substantial decline from the 2016 level.

　　From the cost perspective, in 2016, the decline in global mine copper production costs exceeded expectations, and in 2017, there is relatively limited room for further cost reductions. On the one hand, energy (oil) prices have now stabilized at low levels, labor costs continue to rise rigidly, and mining companies are also facing increasing expenditures on environmental protection and compliance with resource nationalism regulations. On the other hand, since 2015, major mining companies have already implemented large-scale management and operational optimizations, as well as measures such as expanding production scale to reduce costs; hence, there are only limited effective measures left available for further cost reductions in the future. Given the low likelihood of significant technological breakthroughs occurring in the mining sector in the short term, it is expected that in 2017, global mine copper production costs could fall by at most around 5% compared to 2016. The cash cost at the 75% production threshold is projected to be no lower than USD 3,550 per tonne.

　　Overall, influenced by factors such as supply and demand, costs, the Federal Reserve’s interest-rate hikes, and weakening financial demand for copper, copper prices in 2017 will still lack sufficient upward momentum. However, the lower-end range of price fluctuations has been raised. It is expected that international market prices will oscillate between $4,800 and $5,600 per ton, and under optimistic scenarios, they could even break through the $6,000-per-ton mark. Nevertheless, given the various “black swan” events that could occur in 2017—such as the German election, the French election, the Italian election, and a global trade war—the volatility of copper prices will significantly intensify, making sharp rises and falls virtually inevitable.

　　 II. Aluminum Cost support strengthens, and prices fluctuate narrowly.

　　In 2016, the aluminum market was influenced by factors such as a contraction in supply and a sharp rise in prices of black metals, causing prices to bottom out and then rebound with fluctuations. During the first ten months, international aluminum prices mostly fluctuated between US$1,500 and US$1,700 per ton, while domestic aluminum prices oscillated between RMB 11,000 and RMB 13,000 per ton. Subsequently, driven by soaring coal and coke prices and across-the-board increases in base metal prices, both international and domestic aluminum prices once again began to rise, reaching peaks of over US$1,750 per ton and RMB 14,000 per ton, respectively. By year-end, however, prices had retreated somewhat to around US$1,700 per ton and RMB 13,000 per ton. For the entire year, the average settlement price of aluminum on the London Metal Exchange (LME) was US$1,604 per ton, down 3.38% from the 2015 average but up 13.67% over the course of the year. Meanwhile, the average settlement price of aluminum on the Shanghai Futures Exchange (SHFE) was RMB 12,215 per ton, roughly unchanged from the 2015 average; yet, throughout the year, prices rose by more than 18%, with significantly greater volatility than that seen in the international market.

　　 Looking ahead to 2017:

　　From the demand side, with the global economy remaining weak—especially given the continued downward trend in China’s economy—the outlook for the aluminum market in 2017 is not optimistic. The construction and decoration sector is China’s largest consumer of aluminum, accounting for more than one-third of total consumption. Driven by the earlier “booming” market conditions, from January to November 2016, the cumulative sales area of commercial residential properties rose by 24.3% year-on-year, returning to relatively high levels seen in recent years.

　　However, after the National Day holiday, China entered a new round of real estate adjustment cycle, and the growth in aluminum demand in related sectors will inevitably be affected going forward. The UK-based CRU forecasts that in 2017, the growth rate of global demand in the construction and renovation sector will slow from 5.5% in 2016 to 3.8%; during the same period, the growth rate of primary aluminum demand in the global transportation sector will also decline from 2.4% in 2016 to 1.9%.

　　From the supply side, in 2017, aluminum smelting capacity expansion continued in Asia, and global primary aluminum production is set to resume growth. Although policy adjustments by the Malaysian government concerning bauxite could significantly impact supply in the Southeast Asian market in 2017, Guinea’s bauxite capacity began to ramp up substantially in 2016, and Brazil’s bauxite capacity has also been expanding rapidly over the past two years. The International Aluminium Institute (IAI) forecasts that, in the coming years, global bauxite supply will increase by an additional 40–50 million tons annually. Meanwhile, capacity transfers worldwide are driving rapid expansion of aluminum smelting capacity in India and the Middle East, while newly built or expanded aluminum smelting capacity in China’s northwest and southwest regions continues to come online. Moreover, boosted by stabilizing aluminum prices, some previously idled aluminum smelting capacity in China has begun partially resuming operations since the second quarter.

　　 It is expected that the growth rate of global primary aluminum supply in 2017 will accelerate compared to 2016.

　　From the cost perspective, as energy prices—especially coal prices—stabilize and rebound, it will be difficult for global electrolytic aluminum production costs to continue declining in 2017. Electricity costs account for roughly 35% of the cash costs of electrolytic aluminum production. To effectively reduce production costs, over the past several years, aluminum smelting capacity worldwide has been massively shifted from regions facing energy shortages and high electricity costs to regions rich in energy resources and with lower electricity costs. In China, 75% of electricity generation relies on coal, while in regions such as the Middle East and South Asia, this proportion is even higher. Since 2012, coal prices have steadily declined, directly leading to a sustained drop in both electricity production costs and electricity prices.

　　Entering 2016, influenced by China’s “supply-side” policies, coal prices worldwide began to stabilize and rebound from their low levels. In particular, starting in May, coal prices entered a “sharp rally” mode, with domestic market coal prices experiencing increases of over 200% on average compared to the beginning of the year. Although prices saw some pullback in December under government pressure, the overall increase still exceeded 100%. It is expected that coal prices will continue to decline in 2017; however, the upward trend in coal costs for thermal power generation following 2016 remains firmly established. Based on this outlook, the Australian mining consultancy AME forecasts that the globally weighted average cost of primary aluminum production in 2017 will rebound to around US$1,490 per ton.

　　Overall, influenced by factors such as supply and demand, costs, and inventory levels, aluminum prices in 2017 are expected to remain in a narrow trading range with limited upside and downside potential. It is forecast that international market prices will generally fluctuate between US$1,500 and US$1,750 per ton, with an average price roughly equivalent to that of 2016.

　　 Three, Lead Supply and demand growth is slowing, while prices remain relatively stable.

　　In 2016, influenced by factors such as supply-side contraction and a sharp rise in zinc prices, lead prices stabilized and rebounded. In the first half of the year, international lead prices mainly fluctuated between US$1,600 and US$1,850 per ton. As the second half of the year began, driven by supply-side contraction—particularly supported by the surge in zinc prices—LME lead prices easily broke through the US$1,900 per ton mark and reached a peak above US$2,400 per ton in early December. During the same period, domestic lead prices also rose in tandem, with an even more rapid upward momentum. SHFE lead prices surged to over 22,000 yuan per ton at their peak, hitting a new all-time high. For the entire year, the average settlement price of LME lead was US$1,868 per ton, up 4.8% from the 2015 average and representing a 10.4% increase within the year. Meanwhile, the average settlement price of SHFE lead was 14,543 yuan per ton, up 12.4% from the 2015 average and showing a 34.1% increase within the year.

　　 Looking ahead to 2017:

　　From the demand side, currently about 80% of the world’s lead resources are used for the production of lead-acid batteries, with the automotive industry—including electric vehicles—being the key end-use sector. As the world’s largest producer and consumer of automobiles, China’s cumulative automobile production from January to November 2016 reached 25.02 million vehicles, representing a year-on-year increase of 14.26%. This growth rate has rebounded to the fastest pace seen over the past two years, providing solid support for the rising demand for lead-acid batteries. However, due to the phased adjustments in real estate policies and the expiration of fiscal subsidies and tax incentives aimed at supporting production and consumption in the automotive sector, China’s automotive industry is bound to be affected in 2017. At the same time, as breakthroughs in new battery technologies accelerate—particularly the declining costs and extended lifespans of lithium batteries—the substitution of traditional lead-acid batteries in the small electric vehicle segment (two- and three-wheeled vehicles) is now picking up speed. Consequently, the global lead demand outlook for 2017 does not look optimistic.

　　The International Lead and Zinc Study Group (ILZSG) forecasts that global demand for refined lead in 2017 will slow down from 2.8% in 2016 to around 1.3%, with a total volume of approximately 11.3 million tons.

　　From the supply side, as a byproduct, the supply of lead concentrates contracted significantly in 2016 due to the closure of large zinc mines and production cuts by enterprises. Among them, just the reduction in zinc concentrate production by Glencore alone led to a decline of approximately 100,000 tons in lead concentrate supply. As lead and zinc prices rebounded and processing fees continued to fall, some of the mines that had already reduced or halted production globally began resuming operations starting from the third quarter of 2016. Based on the latest developments at major mines, it is estimated that the resumption of production at Australian lead-zinc mines alone in 2017 will add about 100,000 tons to the supply of lead concentrates. In addition, thanks to the ramp-up of capacity at Vedanta’s Sindesar-Khurd mine, India’s lead concentrate output is expected to increase by around 50,000 tons in 2017. Consequently, global lead concentrate production in 2017 is projected to reverse the years-long trend of contraction. However, due to increasingly stringent environmental regulations worldwide—particularly China’s ongoing intensification of environmental oversight in the secondary lead smelting sector—global refined lead production growth will face certain constraints.

　　The UK-based CRU forecasts that the growth rate of global refined lead production in 2017 will slow from 2.9% in 2016 to 1.9%.

　　Taking both supply and demand into account, the global lead market is expected to remain in a mild surplus situation in 2017, and the short-term pressure on refined concentrate supply will ease significantly. According to the International Lead and Zinc Study Group (ILZSG), the global lead market’s supply surplus in 2017 is projected to narrow from 42,000 tons in 2016 to 23,000 tons.

　　In terms of pricing, lead prices are expected to remain relatively stable in 2017, with the international market price center projected to be between US$1,800 and US$2,200 per ton. In addition to supply-and-demand factors, the performance of the lead market in 2017 will continue to be influenced by zinc—a factor that demand is closely watching.

　　 4. Zinc: Supply shortages persist, and prices continue to rise.

　　In 2016, supported by a contraction on the supply side, the zinc market outperformed other base metals. International zinc prices rebounded rapidly and continued to rise, reaching nearly US$2,900 per ton. Domestically, zinc prices surged above 24,000 yuan per ton, hitting multi-year highs across the board. As speculative activity subsided in December, zinc prices, like those of other base metals, began to pull back. By year-end, international and domestic zinc prices had fallen to around US$2,540 per ton and 20,000 yuan per ton, respectively. For the entire year, the average settlement price for LME zinc was US$2,088 per ton, up 8.5% from the 2015 average, with an intrayear price increase exceeding 60%. The average settlement price for SHFE zinc was 16,726 yuan per ton, up 10.6% from the 2015 average, with an intrayear price increase of 58.2%.

　　 Looking ahead to 2017:

　　From the demand side, China is the world’s largest consumer of zinc resources, with the construction sector accounting for nearly 50% of its total consumption. Following the National Day holiday, China has entered a new round of real estate adjustment cycle, which will inevitably lead to a slowdown in demand growth across related sectors. As the second-largest consumer of zinc, China’s auto production and sales growth rate reached a recent high in 2016, partially squeezing out space for 2017. Consequently, the future growth in zinc demand driven by industrial development is expected to be relatively limited. According to estimates by the UK-based CRU (Commodity Research Unit), China’s zinc demand growth rate in 2017 will slow down from over 6.0% in 2016 to around 5.0%. However, in 2016, developed countries saw robust performance in sectors such as real estate and automobiles, which will provide a boost to global zinc demand growth in 2017.

　　The International Lead and Zinc Study Group (ILZSG) forecasts that global demand for refined zinc will increase by approximately 2.0% in 2017, reaching a total of 13.85 million tons.

　　From the supply side, in 2016, the global zinc market experienced a supply shortage due to several factors: the closure of several large mines, proactive production cuts by mining companies, and the suspension of operations by Chinese enterprises amid increasing environmental pressures. Among these, Glencore’s output in 2016 was expected to decline by approximately 500,000 tons compared to 2015, making it a key driver of the market shortage. Currently, there are no plans for any major mines (with annual output of 50,000 tons or more) to close in 2017. As for mines that have already implemented voluntary production cuts, it remains uncertain whether they will continue to maintain low output levels once prices rise significantly—thus, the outlook is not optimistic. For instance, according to Glencore’s third-quarter report, its quarterly zinc metal production surged by 13% year-on-year, marking the first quarterly increase since the company announced its production cuts. Moreover, whether China’s numerous small and medium-sized zinc mining enterprises can meet environmental standards—and whether they might resort to illegal mining under the lure of high prices—also represents an important factor influencing the supply side of the market in 2017.

　　 Overall, global zinc ore supply in 2017 is likely to remain tight, but the degree of tightness is expected to ease significantly.

　　Taking into account both supply and demand, it is expected that in 2017 the global zinc supply growth rate will likely exceed the consumption growth rate, thereby easing the tight supply situation in the market and resulting in an overall balanced supply-demand scenario. According to the International Lead and Zinc Study Group (ILZSG), the global zinc market’s supply deficit in 2017 is projected to narrow from 3.49 million tons in 2016 to 2.48 million tons. As for prices, zinc prices in 2017 are expected to continue rising from current levels, with the international market price center of gravity forecast to be between US$2,200 and US$2,800 per ton; under optimistic conditions, prices could even reach a high of US$3,000 per ton.

　　However, the risks on the supply side of the zinc market in 2017 should not be overlooked—particularly the attitude of Glencore toward production arrangements at its mines that have already undergone output cuts. Once Glencore decides to resume production at these mines, zinc prices will undoubtedly be hit hard.

　　 V. Nickel: Both market supply and demand are robust, leading to a slight increase in prices.

　　In 2016, supported by a contraction on the supply side and strong demand conditions, nickel became the second-best-performing base metal after zinc. In the first half of the year, international nickel prices mainly fluctuated between US$8,000 and US$9,000 per ton. Starting from the second half of the year, as the supply-side contraction intensified—particularly under the boost from rising zinc prices—LME nickel prices easily broke through the US$10,000 and US$11,000 per ton marks. During the same period, domestic nickel prices also rose in tandem, with even stronger momentum, once surpassing 95,000 yuan per ton. By year-end, both international and domestic nickel prices had fallen back to around US$10,000 per ton and 95,000 yuan per ton, respectively. For the full year, the average settlement price of LME nickel was US$9,495 per ton, down 18.7% from the 2015 average but up 17.8% over the year; the average settlement price of SHFE nickel was 77,088 yuan per ton, down 9.2% from the 2015 average but up more than 20% over the year.

　　 Looking ahead to 2017:

　　From the demand side, currently more than 80% of the world’s nickel resources are used in stainless steel production. China is the world’s largest producer and consumer of stainless steel. As a result of Chinese factors, global nickel demand in 2016 grew beyond expectations. Entering 2016, with the deepening of “supply-side” reforms, China’s steel market experienced a surprisingly sharp price rally—domestic steel prices generally rose by more than 50%, and for some specific varieties, the price increase even exceeded 100%. Driven by this substantial price surge, Chinese stainless steel enterprises ramped up production to full capacity, and annual output growth is expected to exceed 10% year-on-year. However, given that terminal demand growth during the same period was relatively limited, large inventories of stainless steel have accumulated in society, squeezing the room for further output growth in 2017 and thereby constraining future growth in nickel demand. On a relatively optimistic note, with the rapid development of the new-energy industry, nickel demand in related sectors is expected to maintain high growth rates in 2017.

　　 INSG forecasts that global nickel metal demand will reach 2.11 million tons in 2017, with the growth rate slowing to around 5%.

　　From the supply side, the continued decline in China’s ferronickel production and the unexpected reduction in nickel ore supplies from the Philippines were the primary factors driving the contraction of the nickel market supply in 2016. However, given the potential for a recovery in Philippine nickel ore supplies—especially as Indonesia’s newly built ferronickel projects gradually come online—the global nickel supply situation in 2017 could reverse the consecutive years of contraction seen in previous years. According to WBMS data, in the first ten months of 2016, Indonesia’s nickel ore production increased by more than 40% year-on-year, while ferronickel production surged by as much as 150%. It is expected that further capacity expansion will occur in the ferronickel sector in 2017. Moreover, as nickel prices stabilize and rebound, Chinese nickel smelters are becoming increasingly willing to resume production; this trend is evident in China’s nickel metal (including ferronickel) production data starting from the third quarter onward.

　　INSG forecasts that global refined nickel production will reach 2.05 million tons in 2017, an increase of approximately 5% over 2016.

　　Taking into account both supply and demand, the global nickel market is expected to maintain a “strong supply and demand” trend in 2017. Although the market shortage will persist, its severity is likely to ease somewhat. Specifically, INSG forecasts that the global nickel market will face a supply deficit of 66,000 tons in 2017. As for prices, nickel prices in 2017 are expected to fluctuate upward from current levels, with the international market price center projected to range between US$10,000 and US$12,000 per ton. The annual average price is forecast to rise by about 10% compared to 2016. However, at year-end, LME nickel inventories remained high, staying above 370,000 tons, and China’s total port inventories of nickel ore continued to hover around 14 million tons. These factors are likely to exert downward pressure on nickel prices in 2017.

　　In addition, there is some uncertainty regarding the recovery of nickel production in the Philippines in 2017, which is also a significant factor influencing future price fluctuations.