Base metals are likely to struggle to recover in the first half of 2009 on worsening demand because of global economic downturn. But in the second half, industrial commodities would see an uptrend on possible supply constraints due to production cuts.
Overall, the year 2009 will continue to provide volatile trading for copper and tin, and increasingly range-bound price activity ahead for nickel and aluminium. Lead and zinc will fall somewhere between these two extremes. There will always be exceptions driven by commodity-specific conditions, but overall macro trends will not be supportive in 2009.
In the first half of 2009, copper will be most vulnerable to continued price falls as current market levels still sit significantly above production cost averages. On the other hand, nickel and zinc markets are likely to be more resilient to negative pricing pressure since a larger proportion of production faces costs above market prices and the supply side has implemented more extensive output cuts than other metals.
In the second half, however, the historically lower levels of inventories mean that any pick-up in demand will first feed into higher copper and tin prices.
(The author is commodity research head, Standard Chartered Bank, UK)
