Base metal prices are likely to decline throughout the rest of the year, according to the latest findings of London-based Natixis Commodity Markets. The downturn will be led by laggards such as lead, nickel and zinc, which will spread to other base metals, forecast the London-headquartered consultancy firm.
Prices of lead, nickel and zinc have fallen by over 50 per cent so far this year, following increased fears of stagflation, which have spread a bearish sentiment across the base metals market. Natixis sees more selling by funds than buying over the next 18 months.
| BLEAK FUTURE Base metals price outlook 2005-09 | |||||
| Cash price $/tonne | 2005 | ||||
Strikes and power-related problems have threatened supply of the metals in the recent past. But production growth is expected to accelerate, with huge capacity addition planned by existing players across sectors.
Additionally, the double-digit rise in the output of Chinese base metals, expected to hit the market soon, will lead to a glut in metals, further putting a downward pressure on prices.
With the exception of copper, the tightness in the raw material market appears to be easing. According to Natixis, an improvement in the supply of metals and a decline in demand have led to a bearish mood.
Also Read
A slowdown in the construction sector and a downturn in auto sales in developed economies have led to a lower demand for aluminium extrusions, copper tube and wire and other base metals.
The report attributes external factors such as rising power costs impacting demand for aluminium. However, a continued investor interest in the energy-intensive commodity has a potential for the metal to touch new highs in the short term.
But from a fundamental perspective, demand remains weak and is being outpaced by higher output. Inventories at the London Metal Exchange-registered warehouses are hovering around 1 million tonnes, which may dampen investors’ sentiment towards the metal.
Copper was already overheated, with prices rising by about three times the cost of production. The red metal shot up to $8,800 a tonne, when the cost of production and raw materials remained costlier on supply shortage.
As the price was not fundamentally supported, the weakness was bound to come. The trend is likely to continue, says Natixis, projecting a slightly higher surplus of the metal at 75,000 tonnes in 2008 and 125,000 tonnes in 2009.
Lead has been in deficit since 2003 on a shortfall in concentrate rather than a strong demand. However, with supply getting better, the lead market has returned to surplus. The market is projected to remain in a surplus of 65,000 tonnes in 2008 and 85,000 tonnes in 2009, according to Natixis.
A dramatic surge in nickel pig iron production in China had resulted in an oversupply last year amid a weakening demand. But the demand is likely to resume from key stainless steel companies. As a result, the market is expected to remain in modest surplus in both 2008 and 2009, said the report.
The report added that Tin would follow other base metals in the downward movement. A surplus supply projection of 145,000 tonnes may create a pressure on prices. But demand from the galvanised steel industry may reduce the pressure, keeping prices range-bound in 2008 and 2009.