However, aluminium producers remain bullish on outlook.
Industry remains cautious on the outlook for base metal demand despite a rally this month that has pushed the prices of copper, zinc and aluminium by 20 per cent, 19 per cent and 7 respectively on the London Metal Exchange.
The rally came on the back of China’s state reserve bureau purchasing copper and zinc for strategic purposes. The prices of the base metals increase also coincided with global production cuts.
| UPWARD MARCH Base metal prices in $ / tonne on LME | |||
| Mar ‘09 | Apr ‘09 | % change | |
| Aluminium | 1,355 | 1,449 | 6.9 |
| Copper | 4,003 | 4,816 | 20.3 |
| Zinc | 1,291 | 1,530 | 18.5 |
China is a major producer of aluminium. But it does not have enough copper mines to meet its own demand and that prompted the government to purchase copper which is used majorly by the electronics, communications and transportation industry. Copper is essential for making hybrid cars for which demand is likely to pick up in coming years.
However, industry analysts believe that the rally in copper prices is most vulnerable.
“Seasonal factors would suggest Chinese copper imports are set to collapse over the next three months,” said Michael Lewis, a London-based Deutsche Bank AG analyst.
Copper was being quoted at $4,816 per tonne on Friday on the LME, a six-month high. The price for the metal had reached an all-time high of $8,900 on July 2 last year on the LME. It crashed by 68 per cent to $2,809 per tonne on December 24, following credit crunch and the global slowdown.
Sterlite Industries, India’s largest copper producer, refrained from commenting on the outlook for the metal before its its quarterly results on April 28. The stock of the company was priced at Rs 388 a share on Friday on the Bombay Stock Exchange (BSE). The stock gained 9 per cent this month while the Sensex has gained 13.5 per cent to 11,023 in the same period.
Aluminium, with inventory level at an all-time high of 3.6 million tonnes on LME, has rallied the least this month up 7 per cent to $1,449 per tonne on the global pick-up in demand.
The metal is primarily used in the transportation, packaging and construction industry. After recording a high of $3,271 a tonne in July 2008 on the London Metal Exchange, the spot price of aluminium dropped 67 per cent to $1,251 a tonne in February 2009. The metal is currently priced at a three-month high and, its producers and the analysts sound optimistic about a further rise in prices.
“We expect to make a reasonably good profit wherever the prices go from here now,” said B L Bagra, director-finance, India’s second largest producer for the base metal National Aluminium Company (Nalco), expecting an upward swing in the prices.
The company expects an average of $1,700 price for the base metal in the present financial while it expects to reach $2,000 per tonne by the end of it. The cost of production of the government-owned Nalco is $1,300 per tonne. It charges $40 to $70 premium on LME price of the metal to its customers.
Bagra reasons that the production cut by the various producers are now helping to check the rising inventory levels. Nalco’s stock on BSE closed at Rs 233 a share on Friday, a 9 per cent gain in this month. Stock of India’s largest aluminium producer Hindalco Industries gained 6 per cent to Rs 55 a share in the same period.
An analyst of a foreign brokerage who did not wish to be quoted said globally only about 35 per cent of the producers of aluminium are able to make operating profit at the present prices which would push for more production cut bringing down the inventory level and pushing the prices.
Prices of zinc which is primarily used for galvanising steel also picked up in the month at the back of rising demand for steel and stocking by China. Analysts remain cautious on zinc prices. “These reserves create an overhang, and hence we downgraded our medium-term zinc price forecasts,” said Rakesh Arora, an analyst with Macquarie, the Mumbai-based arm of international brokerage.
It has given a forecast of $1,251 for the present financial year. For the next two financial years, it estimates a price of $1,488 and $1,819.
Zinc prices reached a high of $2,810 per tonne on March 3 last year and it cras-hed by 62.7 per cent to $1,046 on December 12. At Friday’s price of $1,530 a tonne on LME, zinc was trading at a six-month high.
Hindustan Zinc, the largest producer of the base metal, did not comment before the announcement of its quarterly results. The company will be announcing its results on April 22. The stock of the company has gained 11.4 per cent this month to Rs498 a share on BSE.
