Price buoyancy of base metals expected to continue in 2022: Report

The price buoyancy of base metals is likely to continue in the calendar year 2022, as low visible inventories and demand-supply gap may insulate against any sharp rate corrections, according to a report.

However, downside price risks, including that from the sudden spread of the Omicron variant of coronavirus, cannot be ruled out, rating agency ICRA on Thursday said in the report.

International prices of base metals rose 33-54 per cent during 11 months of the calendar year 2021 compared to the corresponding period of the previous year, supported by deficit/ or balanced demand-supply and tight inventory situation in the global market.

The prices of non-ferrous metal remained buoyant in the calendar year 2021 on the back of steady improvement in demand- and supply-side constraints, ICRA said in a statement.

Globally, while the demand-supply for aluminium and zinc stood at a deficit in the nine months of the calendar year 2021, the copper market remained in balance during the same period.

In CY2022, the supply of copper is expected to improve with increased availability of concentrates, on the back of commissioning of several new mine projects. The aluminium market, however, will remain tight owing to production cuts in China and no significant capacity additions in the near term, in the rest of the world.

The zinc market is also expected to remain in deficit after a production cut announced by a few European smelters in October 2021, owing to increasing energy costs.

However, downside risks on prices from such high levels at present cannot be ruled out over the short term, with the gradual withdrawal of liquidity support extended by various central banks during the pandemic period. Risks could also be accentuated by a rapid spread of the Omicron variant globally.

"The domestic consumption of base metals has witnessed a healthy growth of 20-25 per cent in 6M FY2022, owing to a low base of the previous fiscal and an improvement in demand from end-user industries.

"We expect the demand for base metals to register a healthy growth of 6-7 per cent in FY2022 and FY2023," Jayanta Roy, senior vice-president and group head (corporate sector ratings) of ICRA, said.

He added that the consolidated operating margins are estimated to remain strong at 29 per cent in FY2022 compared to 24 per cent in FY2021. The margins are likely to hover at about 25 per cent in FY2023, despite an expected moderation in prices.