Price of base metals unlikely to increase further: ICRA

Improving manufacturing PMIs of major economies is a positive sign for global base metal demand

The prices of aluminium, copper and zinc are unlikely to increase further following higher production resulting in surplus markets this year, a report said.

Base metal prices had strengthened steadily earlier in the first nine months of 2016 as a result of the deficits in the global base metal demand-supply balances, apart from some positive sentiment on China's overall demand scenario, ICRA said in a report.

"During this period, aluminium, copper and zinc prices have increased by 13 per cent, 4 per cent and 53 per cent respectively," it added.

According to the report, as the deficit in the zinc market has been the widest among the three base metals, zinc prices had witnessed the sharpest upturn in this period.

"While the aluminium and zinc markets remain in deficits, the international copper market has turned surplus in the middle of third quarter of 2016," it added.

"Higher production, when global consumption growth still remains subdued, would likely result in surplus aluminium and copper markets and exert pressure on prices of these metals", said the report.

It said that ICRA's outlook on the long-term demand of base metals in India remains positive, driven by investments in infrastructure projects for the power transmission and distribution sector, urban housing and smart city programmes.

"The industry's fundamentals, which could have justified this upturn in prices, have not experienced any significant change during this period," said Jayanta Roy, Senior Vice-President and Group Head, Corporate Sector Ratings, ICRA.

"Nevertheless, improving manufacturing PMIs of the major economies is a positive for global base metal demand, going forward," Roy added.

ICRA said international base metal prices are unlikely to increase further, as recent rallies have been largely sentiment-driven, and positions taken by global commodity funds, without any major change in fundamental demand-supply positions in recent months.