After witnessing record low levels in the second half of 2015-16, international prices of aluminium, copper and zinc have strengthened, according to rating agency Icra.
"The improvements are results of the current deficits in the global base metal demand-supply balances, apart from some improvement in sentiment on China's overall metal demand scenario.
"As the deficit in the zinc market is the widest among the three base metals, zinc prices have witnessed the sharpest upturn," said Jayanta Roy, Senior Vice-President and Co-Head, Corporate Sector Ratings, Icra.
Further, in the near term, base metal prices may witness some volatility after Britain's decision to exit the European Union, Icra added.
While aluminium and copper prices quoted at the London Metal Exchange (LME) have strengthened by about 13 per cent and 9 per cent each from their respective lows, increase in the price of zinc has been much sharper, at about 39 per cent, the report from Icra stated.
With an anticipated increase in supply from new facilities, it expects the international aluminium and copper markets to turn marginally surplus in the second half of this calendar year.
Such demand-supply swings would keep international aluminium and copper prices range bound, hovering around their current levels in the near term.
On the other hand, with an increasing shortage of zinc ore globally, supply of zinc would remain constrained, which in turn is likely to result in a further strengthening of zinc prices, it said.
Changes in investor sentiments as well as weak growth outlook in the Euro zone may dampen non ferrous metal prices. However, in Icra's opinion, Brexit is unlikely to have a significant impact on India's non ferrous metal sector, since the region's share in global base metal consumption has been limited.
On the domestic front, consumption growth for aluminium and copper remained healthy in 2015-16 at about 15 per cent and 12 per cent respectively on account of healthy demand from the power transmission and distribution sector.
However, consumption growth of zinc was marginal at only approximately 0.6 per cent in the same period.
Demand for domestic zinc was adversely affected by direct import of various galvanised steel components, which grew by about 18 per cent in the last fiscal.
Nevertheless, Icra's outlook on long term demand of base metals in India remains positive, driven by investments in infrastructure projects for the power transmission and distribution sector, urban housing and smart city programmes.
