Commodities | May 02 2007
By Chris Shaw
The first third of 2007 has been a reasonable period for base metal prices, Natixis Commodity Markets suggesting the key bull market drivers such as increased buying from China and solid global economic growth remain in place. The group also sees some signs Chinese production growth is slowing, a bullish outcome as it implies increased levels of imports will be required.
Also supportive to metal prices have been supply disruptions at a number of projects in the lead and tin markets in particular and ongoing speculative buying in the commodity markets generally, while seasonally the current period is usually a good one for demand.
As evidence conditions remain good Natixis notes lead, nickel and tin prices have already made new highs this year, while copper looks likely to also test its previous highs. The same cannot be said for aluminium as the group points out it is struggling from high stockpiles, so it is expected to continue to underperform relative to its peers.
The group expects prices to continue their recent trend of being highly volatile, as historically low levels of stockpiles make prices more vulnerable to unexpected shifts in demand of supply.
In terms of forecasts, it sees the aluminium price averaging US$2,750 per tonne this year before falling to an average of US$2,300 per tonne in 2008, as while demand is growing it continues to be matched by higher mine output. This suggests a balanced market, so reducing the chance for stockpiles to come down.
Similarly Natixis expects that without any disruptions to supply the copper market will also be fairly well balanced, particularly as it expects the current surge in Chinese demand to wane as the year progresses. Based on its expectation of a surplus of around 50,000 tonnes this year the group is forecasting an average price of US$6,350 per tonne, falling in 2008 to an average of US$5,000 per tonne.
In contrast, the lead market is likely to remain in a deficit this year of as much as 35,000 tonnes, as the previously expected increase in supply from Australia is now likely to emerge only in the second half of the year. With a return to a surplus in 2008 the group is forecasting average prices to fall from US$1,850 per tonne this year to US$1,600 per tonne next year.
If any correction is to come in the nickel market Natixis sees it as coming from the demand side, as in supply terms there is still a structural capacity shortfall. While some new production has come on stream the group suggests this is merely filling in the gaps as the market awaits production at major new projects in coming years.
Some fall in demand is considered likely in coming months thanks to production cuts in the stainless steel market, which could see prices dip for a time, the group’s expectation being for prices to average US$35,000 per tonne this year before sliding to an average of US$23,500 per tonne in 2008.
Following recent gains the group suggests the key question in the tin market is can a further improvement in the market’s fundamentals push prices even higher? Short-term it suggests the answer is yes as it sees the chance of prices spiking above US$15,000 per tonne, though for the year it expects an average price of US$13,750, falling to US$10,000 per tonne in 2008 as Indonesian and Chinese output increases.
While the zinc market is likely to post a deficit of around 17,000 tonnes this year Natixis expects the supply side to respond, pushing the market into surplus and average prices lower in 2008. Its average price forecasts reflect this, as it sees prices averaging US$3,500 per tonne this year and US$2,750 per tonne in 2008.