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Falling demand may dent base metal prices

MARKET OUTLOOK

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Base metals may decline this week on deteriorating demand from both developed and developing countries. A worsening global economic condition has dented consumption of industrial metals, especially from the housing sector.

Indications are that US job losses, the most since 2001, will hamper copper demand from the US, the second-largest buyer of the industrial commodity used largely in cars and homes.

The Chinese economy, the world’s largest base metal consumer, is estimated to grow by 7.5 per cent in 2009, while the US, Japan and the Eurozone are already in recession.

Consequently, inventories monitored by the London Metal Exchange (LME) is piling up. Fresh allocations for infrastructure development across the globe have halted, while the ongoing projects are being delayed purposefully.

Inventories monitored by LME rose to 291,650 tonnes on Friday, the 19th increase in a row this month and the highest since February 2004. According to the International Copper Study Group, the world copper production exceeded usage by 75,000 tonnes in the first eight months of this year compared with a 22,000-tonne surplus in the same period last year.

Meanwhile, volatility continued throughout the base metal market last week, with copper slipping to $3,565 a tonne on Tuesday before recovering to the level of $3,742 the following day. The metal slipped again towards the end of the week to close at $3,634, a decline of 2.19 per cent over the last week’s price.

According to industry experts, although the red metal is hovering in a range closer to the cost of production, it is well above the level that it fell in the last cycle.

Similarly, aluminium dropped by 1.08 per cent to $1,739 from $1,758, while zinc ended rangebound at $1,206 after hitting a high of $1,274.5 during the mid-week. The white metal’s price also fell as inventories jumped by more than 6,975 tonnes to more than 1.8 million tonnes, almost twice the level since the beginning of the year and its highest since December 1994.

Lead was the biggest loser last week, with the price nosediving by 7.23 per cent at $1,103 from $1,189 as the demand from battery producers are estimated to decline on production cuts.

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