Commodities | Aug 10 2006
By Terry Hughes
Now the dust has settled following the correction that occurred in May and June, National Bank economist Gerard Burg expects base metal prices to remain firm over the near term, despite increased volatility.
A sense of perspective is necessary, Burg says, with many commentators overlooking the "sharp increases in metal prices since that start of the year," and losing perspective on longer term trends, particularly when "speculative selling" was accentuating declines.
However, base metal prices remain firm on year on year terms, he says, as do fundamentals, with potentially weaker US growth seen as the only downside risk. Demand remains strong, he adds, while supply is tight and prices are still seen as being supported by speculative pressure, even post the May correction.
As a result, and with investors continuing to trade on technicals and "partial indicators of underlying fundamentals" while stock coverage is low, the volatility is expected to persist over the short term.
However, the economist expects prices to peak in the December quarter, before declining by around 10% during 2007.
As a result, NAB has raised its aluminium price forecasts for 2006 by US$50 to US$2,000/t and 2007 by US$20 to US$2,500/t. Copper has been increased by US$3,250 to US$6,900/t in 2006 and by US$1,525 to US$6,500/t in 2007.
Nickel rises US$4,853 to US$19,800/t in 2006 and by US$2,387 to US$16,750/t in 2007, while zinc forecast have been increased by US$345 to US$3,120/t in 2006 and by US$550 to US$3,700/t in 2007.
Only lead forecasts have been reduced, by US$130 to US$1,110/t in 2006 and by US$215 to US$875/t in 2007, as forecast surpluses soften prices.