Analysts differ on metal prices

MARKET OUTLOOK

Traders are divided over the outlook for base metals next week, following contrasting reports emerging from across the world. China, the world’s largest producer and consumer of base metals, has turned unpredictable, further adding to the confusion.

China is a crucial market for estimating global production and consumption figures. The country’s copper production fell by 7 per cent to 293,900 tonnes in October, while the inventory also declined by a staggering 3,141 tonnes to 21,496 tonnes in three warehouses last week.

Analysts believe that China has slowly been gearing up to use more metals of domestic origin, which may push global prices further down. As prices dip, China would enter the global market to pile up on cheaper metals, they added.

However, another set of analysts sees prices remaining lower on subdued demand from the global market. They are of the view that existing projects have been delayed and new projects have been scrapped at least till global economic conditions turn positive.

Slumping prices of base metals in the global market have forced Chinese smelters to cut capacity, which has resulted into copper output declining of 7 per cent in October at 293,900 tonnes. Inventories of other base metals in Shanghai have also declined dramatically, indicating that the country is aggressively going ahead with industrial projects. Stockpiles of aluminium and zinc have also decreased substantially.

The Chilean Central Bank has slashed its forecast for copper next year as a result of the slower-than-expected economic growth and higher inflation. The bank said copper may average $1.65 a pound next year, less than its previous $3.10 a pound estimate.

Macquarie also cut its 2009 price forecast of copper at $1.70 a pound next year, down from an earlier forecast of $3 and this year’s average of $3.189. The global firm also forecast aluminium to average 90 cents a pound lower, 31 per cent less than the previous forecast of $1.30 and down from $1.198 in 2008.

On Friday, copper rose the most in a week as a rally in Asian and European equity markets eased concerns that a worldwide economic slump will slash metal demand.

Copper futures for March delivery climbed 8.5 cents or 5.2 per cent to $1.715 a pound on the Comex division of the New York Mercantile Exchange, the biggest gain since November 4. The contract increased 0.8 per cent this week. The metal has still dropped 60 per cent from a record in May.

On the London Metal Exchange, copper for delivery in three months rose $150, or 4.1 per cent, to $3,820 a tonne ($1.73 a pound). After hitting a high of $4,005 a tonne on Monday, copper fell 7 per cent for the week ended Friday to close at $3,722, while aluminium, tin, lead and nickel also followed suit. Zinc, however, continued to buck the trend and gained 8.21 per cent to close the week at $1,199.