Base metal investors may not be able to wake up from this nightmare

You know it's grim when a sector's primary bull case involves bankruptcy.

Unfortunately for those in the base metals space, "that's the situation we find ourselves in," said Edward Meir, senior commodity analyst with INTL FCStone.

The just-concluded year of 2015 is one that base metals investors will desperately want to forget. Amid a dour environment for commodities overall, these industrial metals were among the hardest hit. Aluminum slid 11 percent, copper was down 24 percent, nickel dropped 42 percent, and precious-metal-with-industrial-uses platinum fell 26 percent. With that in mind, observers warn not to expect much in the way of a reprieve.

The twin problems for the space are a glut of supply and a dramatic slowing of demand, mostly due to a slowing Chinese economy — conditions that are unlikely to change merely because the calendar has turned.

'Hitting the wall'

Early in 2016, "we can certainly go lower," Meir said in an interview with CNBC. "And then as prices start to come off and you see not just production cutbacks but more companies hitting the wall and more mergers, you might get a revival" in the second half of the year, he said.

"But you need people to hit the wall," Meir added.

Earlier in December, Deutsche Bank metals and mining analyst Jorge Beristain made a similar point in his dramatically titled 2016 outlook note, '"The Hour of Reckoning."

"As demand continues to slow, particularly for main client China, we see deep supply cuts as immediately necessary to balance plunging commodity prices," Beristain wrote at the time.

"As metals and mining producers continue to come under further stock market pressure, we expect further credit rating downgrades, further dividend slashes, dilutive recapitalizations, possible forced equity raises and [mergers] to feature heavily in 2016," he argued. In addition, "outright bankruptcies" are also possible, the analyst added.

While he says that "we still have some ways to go before calling a bottom" in industrial metals prices, Beristain also believes that prices could stabilize in the second half of the year.

On the whole, it may be said the outlook for metals won't get better until it gets way worse — barring, of course, a dramatic China comeback, which is something few are expecting.

"When you have a country that consumes 50 to 80 percent of these metals and which is slowing down sharply, that's a big problem for the bullish story," Meir said.

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