Base metals prices may dip on oversupply

Base metals prices, led by copper, are likely to continue their downward momentum early this week on profit-booking by traders.

The weak US housing data and the International Copper Study Group's (ICSG) estimates of surplus copper for the year are likely to keep the metal prices low.

The US housing data released last Friday indicate that housing construction plunged by 14.3 per cent, the lowest in nearly 10 years during January. Building permits also continued to fall, the data added. This indicates the use of copper in the US is slated to decline.

The drop in prices of base metals is also supported by surplus estimates by the ICSG, which said in its latest release that the global refined copper market was in an apparent production surplus of about 14,000 tonne in November, rising to around 30,000 tonne after making seasonal adjustments for use.

The apparent refined copper balance for the first 11 months of 2006, including revisions to previous data, indicates a production surplus of about 108,000 tonne. When seasonally adjusted, this becomes a surplus of 207,000 tonne. This compares with a production deficit of 263,000 tonne, seasonally adjusted to 149,000 tonne, for the same period in 2005.

The London-based Numis Securities, however, warned that Chinese re-stocking has started beginning this year, following a year where the Chinese have been running down their inventories.

China's refined and alloy copper imports reached 147,650 tonne in January, up by 70 per cent year on year, the company said. Market participants, however, estimate that China's copper imports in February may hit 150,000 tonne, as consumers secure the metal ahead of the week-long Lunar New Year celebrations and continuing trends afterwards.

Heading towards an all-round weekly gain, base metals slumped marginally on Friday because of profit-booking by cash-strapped metals traders, still recording a weekly gain of up to 9 per cent.

Aluminium, copper, tin, zinc, lead and nickel recorded a weekly gain of 5.17 per cent, 5.63 per cent, 5.10 per cent, 8.61 per cent, 5.70 per cent and 8.70 per cent to $2,889, $5,779, $13,400, $3,380, $1,807.5 and $41,750, respectively.

Nickel fell towards the weekend after trading at a record on Thursday, as stockpiles increased, raising supplies of the metal used to make stainless steel.

Inventories rose suddenly by 162 tonne to 4,152 tonne, which is equal to less than a day's global consumption. The metal has risen by around 15 per cent this year and by more than 60 per cent since January 2006 on jitters over scarce supplies and strong demand from stainless steel mills. Around two-thirds of the nickel output is used for stainless steel.

Tin reached its highest price in at least 17 years on signs of the Indonesian government's plan to tighten export regulations and curb illegal mining, triggering fears of restricted supply. Global tin production may slump 10 per cent this year, experts said. In contrast, global tin consumption expanded 9 per cent in 2006.

The global demand for metals would continue this year too, mainly due to rising economies in the developing world, a London-based analyst said.

Aluminium prices slipped to $2,808 a tonne on Friday from $2,815 on Thursday after the world's biggest bauxite exporter, Compagnie des Bauxites de Guinee (CBG), said it had restarted mining and deliveries to Guinea's Kamsar port.

CBG normally produces just over 14 million tonne of wet bauxite a year and exports some 13 million tonne of dried bauxite. Guinea is the world's largest bauxite miner with an annual output of 20 million tonne.

Prices of aluminium, used in beverage cans and aircraft, have fallen 15 per cent from a 19-year high in May, as production growth outpaced demand. China, the world's biggest producer of aluminium, sees domestic output rising 14 per cent this year.