May witness a sharp fall in first half followed by a steady recovery towards the end of the year.
Base metals are likely to see a volatile next year with prices estimated to witness a sharp fall in the first quarter followed by a steady and sustainable recovery towards the end. Copper and zinc are likely to become the hot pick for 2010.
According to Praveen Singh, an analyst with Sharekhan, massive inventories due to the emergence of low Chinese demand would pull base metals from the current level as the dragon’s stockbuilding is unlikely to rise in the future. China, the world’s largest consumer of base metals, has slowed down investment on infrastructure — a major consumption sector.
Copper inventory on the LME-registered warehouses, shot up sharply at 495,000 tonnes, a merely 40,000 tonnes lower than the all-time high level during the last recessionary period. Aluminium and nickel stocks are ruling on the top while lead and zinc are hovering slightly lower than their record highs. This gives a fair indication that an imminent change to the tune of 25-30 per cent is due in base metals quarters, Singh hoped.
With the global economies recovering with a speed slower than economists’ estimates, the demand is expected to remain under pressure.
Supporting the view, a report from Religare Commodities outlines base metals market to remain in surplus in 2010. ICSG (International Copper Study Group) estimates copper surplus of around 540,000 tonnes which is expected to create lower demand of the red metal. In case of lead, surplus in the world refined metal market of 80,000 tonnes in 2009 should increase to just over 100,000 tonnes in 2010. Meanwhile, world supply of refined zinc metal would exceed demand by 380,000 tonnes in 2009 and 227,000 tonnes in 2010.
Meanwhile, economic crisis has created a large degree of uncertainty in the global market, and a recovery in the world economy is expected in 2010, it is still unclear as to how it would impact both the supply and demand for base metals. Religare warrants caution for base metals. The broking firm forecasts copper prices to trade in $5,800-7,500 a tonne range while zinc to hover between $1,750 and 2,800 tonne. Lead prices are expected to trade in the range of $1,700-2,730 during 2010.
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Kotak Commodities forecast high degree of risk for the next one to two quarters due to high inventory levels and a slowdown in Chinese demand. The price rally over the past couple of quarters materialised even as inventories in LME warehouses maintained their ascent. The base metals complex now factors in a demand rebound from the industrialised world, most notably the US as the release of some economic data points have suggested the world’s largest economy may be emerging from a recession.
In contrast, Angel Commodities expects the dollar to be the prime trendsetter for dollar denominated commodities in 2010 as a weaker US currency makes commodities attractive for holders of other currencies. Further, the US Federal Reserve’s decision to pull back the stimulus measures along with raising interest rates from the current near zero levels would provide further cues to the market. Global economic recovery would remain the focus in the coming year as financial markets still remain wary over the progress and lingering inflationary concerns.
The Mumbai-based brokerage firm expects base metal prices to continue to rise in 2010 on the back of steadily growing industrial and investment demand from China.
China is expected to increase its strategic reserves of commodities in the next year and Chinese loans against metal and other commodity stocks would continue to generate substantial growth in the Chinese industry. Of the approved $586-billion Chinese stimulus package, only $480 billion would have a direct impact on metals demand by way of construction of new airports, railroads, low cost housing and post-quake reconstruction n the Sichuan region.
Growth in Chinese demand for base metals is expected to continue next year, albeit at a slower pace, Western demand for metals is expected to pick-up slowly.