Metals explore new highs as supplies fall

Copper at all-time high, platinum at 26-yr high, silver at 22-yr peak

Serious supply constraints vis-a-vis strong demand is pushing prices of industrial and precious metals to new highs. Copper price is at an all-time high, platinum at 26-year high, silver at 22-year high, zinc at 18-year high, aluminium at 10-year high and tin at nine-year high.

Copper has touched a new all-time high of $5,300 a tonne on Monday, following a strike at Grupo Mexico which reignited supply concerns. According to a Sucden report, the strike "has added to those (problems) caused by a landslide at Freeport-McMoRan's Grasberg mine and a technical fault at one of Newmont Mining Corp's mines in Indonesia".

As far as zinc is concerned there was a global deficit of 42,000 tonne in January 2006, compared with 12,000 tonne in the same month last year, as per the latest data from the International Lead Zinc Study Group (ILZSG). This is expected to fuel further price surge.

"Although as we move into the second quarter, industrial activity picks up which should support higher prices, you cannot ignore the fact that the prices are already high, especially for copper and zinc," said William Adams, analyst with Basemetals.com in an emailed note. This, Adams said, however, could slow down future demand.

Other metals are not far either, with silver seeing a new 22-year high and all set to touch $11 an ounce level after the US Securities and Exchange Commission paved way for the launch of an exchange traded fund, an investment vehicle. The white metal demand is also supporting other precious metals' price increase.

Precious metals remain firm, with palladium and silver outperforming on strong speculative interest, stated a Barclays Capital note.

The upward spiral in base metal prices is yet to subside. Year 2006 is expected to be the fifth-consecutive strong year for base metals as the serious supply constraints evident in 2005 is not likely to be resolved that soon, according to the Barclays report.

A global soft rate scenario, robust growth and an expected weakness in the US dollar augur well for the metals market.

Strong demand from emerging markets, for example China and India, would also support the price surge.

Overall, considering the stocks scenario globally, metals are likely to witness more demand than supply for five years. Globally, mining for most metals has remained stagnant for last two years, following maintenance shutdowns, technical glitches and feed shortages.

For instance, global nickel output was estimated to be down by 45,000 tonne in 2005 and is expected to be around the same levels in this year, according to the Barclays report. As per ICRA estimates, global gold output is likely to fall by about 30 tonne annually for next five years.