Experts divided on base metal prices

Analysts are divided over the near-term future of copper, in particular, and base metals, in general. A section of the analysts see copper prices declining this week on speculation that increasing stockpile of the metal used in wires and pipes will contribute to an oversupply this year.

The situation with aluminium is brightening with rising demand. Analysts believe the demand for aluminium will grow, as industries seek to substitute costlier metals such as copper, zinc and stainless steel with cheaper aluminium.

Abundant supply is a major cause of worry to support any upward movement in metal prices. Inventories in the LME-registered warehouses, however, eased by 100 tonne to 215,625 tonne on Friday, but have doubled in the past 12 months and were about eight times higher than in July 2005.

Ample domestic supplies outweighed the rising spot demand from fabricators in China, resulting in copper inventories in warehouses monitored by the Shanghai Futures Exchange rising 11 per cent by 2,654 tonne to 26,652 tonne during the last week ended Thursday. Inventories reported at the Comex division of the New York Mercantile Exchange were 272,965 tonne, the highest since June 2004.

Meanwhile, the Red Kite fiasco has calmed down suddenly, with shareholders of the largest hedge fund in the world "overwhelmingly" agreeing to a longer notice period for 45 days before pulling their money out of the fund. The hedge fund recently lost nearly $1 billion after its investments in metals dried up.

In contrast to the pessimists, another section of traders say the prices of metals will rise on the tenders floated by South Korea's Public Procurement Service to procure 4,000 tonne of copper cathode for shipment between March and April.

"Although the quantity of tender is minuscule, it may still help change market sentiment," a local trader said.

Meanwhile, talks of a possible strike at Southern Copper's Ilo copper smelter in southern Peru were seen as a major supporting factor for the market going ahead. Southern Copper Corp is expecting to enter new talks with the workers' union at the smelter this week ahead of a strike deadline set for February 19.

On the other hand, China, the largest copper user, may step up purchases in London ahead of the Lunar New Year to bolster stockpiles, as domestic prices have not fallen as quickly, a noted analyst said.

Spot copper rose 2 per cent last week in London to close at $5,401, paring this year's decline to 14 per cent mainly on higher inventory.

Shanghai spot copper prices on Friday were quoted in a range of 53,300 and 53,500 yuan, up 100 yuan from Thursday, while in eastern China premiums for physical copper were around 200 yuan to 400 yuan a tonne. Copper for delivery in three months on the LME was up $5 at $5,420 in early trade on Monday.

The outlook for zinc, nickel, tin and lead is by and large the same as copper and aluminium with slight probable variance.

Base metals prices in the Mumbai non-ferrous metals market largely slipped last week up to Rs 12, where copper wire bar lost Rs 2 to Rs 328 a kg, while copper heavy scrap and utensil scrap slumped by Rs 3 and Rs 12 to close the week at Rs 295 a kg and Rs 275 a kg, respectively. Aluminium ingot lost Re 1 to settle at Rs 142 a kg.

Zinc slab in Mumbai declined by Rs 8 at Rs 175 a kg, while nickel cathode lost Rs 20 to close the week at Rs 1,880 a kg, becoming the largest loser among base metals. Lead ingot recovered in the middle of last week to close at Rs 75 a kg. In contrast, tin slab gained Rs 5 to settle at Rs 615 at the end of the last week.