Commodities welcomed the New Year with positive node as last year 2010 remained eventful year for the global market with lots of events occurred with some were bearish while others have positive impacts but after it all bull players took command on the market, resulted year to finish with some optimisms. There were some skeptical as well as optimism talk on global economies, as demand from emerging nations like China and India spurred the sentiments, while quantitative easing US and stimulus packages to European countries helped western economies to come out from the recession. Now, US economy is on a recovery path, not strong but we can say slow, while European countries struggling to enter in recovery phase.
If we particular talk about base metals, then prices witnessed smart rally in the last year with the king of metal, copper, reached to all time high on expectations usage will outpace supplies next year as the global economy extends a recovery. LME copper prices recovered from $7400 level to $9500, settled near all time high with nearly 28% gain, while consistent declining stocks of copper added positive cues, LME stocks plunged by more than 30 percent in last year. Stainless steel material, nickel remained the top performer commodity in metal complex, rising by more than 30 percent from the previous levels, managed to settle above $24000 mark with stocks noted downside of more than 15 percent in last year.
In other metals, zinc and lead showed roller coaster ride with battery material, lead managed to settled with marginal gain of 5%, and zinc, metal used to galvanized steel, only was the worst performer in metal complex, noted nearly 5% downside on continues rising stocks. Continues build up in stocks put pressure on the prices, inventory of both metals noted more than 30% surplus in LME warehouses. Aluminium prices also remained positive with prices settled with nearly 10 percent rise amid stocks down by more than 8 percent.
Now the question arises, is the bull party over? Or will base metals plunge in next year? We can answer the question looking to fundamentals of metals and pointing out global economies. Performance of Chinese economy would be the best indicator to determine the prices, as Chinese economy growing at a 10% and that is driving China’s demand for base metals. Urbanization is the key factor to watch the demand as urban fixed asset investment rose by 24.9% during the first 11 month on 2010 with retail sales also reporting significant rise. The only concern is the Chinese inflation which hovers above 5% to multi month highs and to curb this Chinese government raised reserve requirement and interest rates many times. So, performance also depends on how the China will control this situation? In Asia, Indian economy growing fast, contributing much in global economy. Apart from the emerging economies, demand from western economies like US and Europe also expected to emerge which will be positive for base metals prices.
In the conclusion, 2011 would be positive for base metals particular copper looks strong, may reach $11000 in the coming year. While nickel, lead and zinc also see positive movements. In the coming month, we expected copper to touch $10000 level on strong buying, while lead prices also see some firmness. Direction of zinc prices will depend on the inventory level as stocks are constantly rising. Our forecasts for nickel prices would be near $30000 in the next year, while lead prices would be around $3000 with zinc prices are expected to be around $2800 in the next year. For the month, correction is may take place in base metals prices, buying at lower would be profitable strategy for long term.
COPPER
Red metal posted golden performance in the last month settled at all time high near $9500 level, gaining by nearly 14% on expectations usage will outpace supplies next year as the global economy expected to recover. On MCX, copper prices reached to 440 levels on strong buying. Inventories noted sharp decline in last year however in the last month stocks rose by more than 5 percent.
If we look at the fundamentals then the situation is very simple as the combination of lower copper-exchange inventories, robust demand largely driven by emerging-market, urbanization and a constrained copper-supply outlook will sustain copper deficits large enough to the next year. The International Copper Study Group said that the global market for refined copper is expected to swing into a 435,000 tonnes deficit for 2011 as increased economic activity boosts demand to outstrip growth of refined production.
During the first nine months of 2010, world apparent usage grew by 8%, approximately 1.09 million metric tonnes compared with that in the same period of 2009.Chinese apparent usage increased by a more modest 4.5% from the very strong 2009 apparent usage level. World mine production in the first three quarters of 2010 continued to underperform, growing by a modest 0.8% around 100,000 tons when compared to production in the same period of 2009.
If we look at the fundamentals then the situation is very simple as the combination of lower copper-exchange inventories, robust demand largely driven by emerging-market, urbanization and a constrained copper-supply outlook will sustain copper deficits large enough to the next year. The International Copper Study Group said that the global market for refined copper is expected to swing into a 435,000 tonnes deficit for 2011 as increased economic activity boosts demand to outstrip growth of refined production.
During the first nine months of 2010, world apparent usage grew by 8%, approximately 1.09 million metric tonnes compared with that in the same period of 2009.Chinese apparent usage increased by a more modest 4.5% from the very strong 2009 apparent usage level. World mine production in the first three quarters of 2010 continued to underperform, growing by a modest 0.8% around 100,000 tons when compared to production in the same period of 2009.
One Month expected trading range for LME Copper would be $9900/t-$9000/t.
NICKEL
In the second half of the year nickel prices remained fragile as many miners have announced plans to restart mines that were idled during the recession period. There is a flood of new supply exceeding demand resulted surplus in exchange warehouses stocks. The ramp up of Canadian nickel output following the end of the strike at Vale’s Sudbury Operation in Canada in July 2010 appears to be the swing factor. If we look at the LME stocks, then during the first half stocks noted sharp decline of 26%, down from nearly 160000 tonnes to 118000 tonnes, but after starting production stocks have been rising in the second half and stood near 135000 tonnes, surplus by 13% during July to Dec 2010.
According to the World Bureau of Metal Statistics, the global nickel supply was in 6,800 tons of shortage in the first ten months of 2010, compared to 600 tons in same period of 2009.The global output of nickel from January to October was 1.19 million tons, up by 4.5% year on year. Besides, the global nickel consumption has increased 142 thousand tons in 2010. Production of smelting nickel in October was 133.4 thousand tons and the consumption was 124.1 thousand tons.
Next Month expected trading range for LME Nickel would be $25000/t-$23000/t.
ZINC & LEAD
LME zinc stocks remain in the focus with inventory increased by ten percent in the last month showing no sign of improvement. Increased supply in the markets and slow recovery in demand resulted rise in stocks with stocks level on LME risen by 30% this year and in Shanghai inventories increased by 80% since the beginning of the year, that’s why this commodity turned out to be a major looser in metal complex, reporting nearly 5 loss on yearly basis. However in the last month, prices witnessed strong buying and it reached to $2400 level on LME, gaining by more than 14 percent.
Zinc production have increased as mines which were idled due to recession have started production too fast on recovering demand, however demand is also there, in 2010 demand have strongly recovered but supply grew from a much higher base resulted surplus of stocks. In the first 11 months, China zinc supply grew nearly 21% to a record 4.8mt. Zinc concentrate production has risen by 25% to a record 3.5mt. Chinese net imports of refined zinc over the period of Jan-Oct 2010 declined by more than 60% amounted to 229kt compared to 617kt same period in 2009.
According to International zinc and lead study group, over the first ten months of 2010, global zinc market noted surplus of 2,11,000 tonnes as supply exceeded demand, while inventory levels increased by 2,31,000. World zinc mine production increased by 9.9% with refined zinc metal production as output in China, Belgium, Brazil, India, Japan and Russia resulted an overall rise of 15.2% in global production. With production, overall global zinc demand rose by 17% as significant recovery of demand in Europe, Japan, Korea and strong growth in Chinese apparent usage was the main factor.
Next Month expected trading range for LME Zinc would be $2600/t-$2250/t
Another price positive development seen in lead prices with LME prices reached to $2500 level, gaining by 15 percent despite of rising inventories. Positive has seen due to unusually cold weather across most parts of Europe in November and December; this has resulted a 40% year on year rise in lead-acid battery sales in UK in last month. However, continues build up in stocks capping some upside with LME les stocks rise towards ten year high of 208,650 tonnes reached in May 2000. Currently stocks stood near 207000 tonnes, which rose by 30% in 2010 and nearly 2 percent in month of Dec. Further, reduction of 20 percent power supplies to lead and aluminium smelters to China’s top aluminium and lead producing province, Henan supported the short term rally.
According to ILZSG, global lead market was in a surplus by 51000 tonnes in the first 10 months of 2010 and stocks increased by 54000 tonnes. Due to higher production in China, India and Mexico world lead mine output noted a rise of 7.7% ignoring slowdown in Peru and US. Global refined metal production increased by 5% due to increases production in Brazil, Canada, China, Germany and Japan. Further growth in Chinese apparent usage and a recovery in European demand were principal influences on an increase in global demand for refined lead metal of 5.3%. Chinese net imports of refined lead metal in the first ten months of the year stood at 12kt against 150kt over the same period of 2009.
Next Month expected trading range for LME Lead would be $2650/t-$2400/t.
Next Month expected trading range for LME Nickel would be $25000/t-$23000/t.
ZINC & LEAD
LME zinc stocks remain in the focus with inventory increased by ten percent in the last month showing no sign of improvement. Increased supply in the markets and slow recovery in demand resulted rise in stocks with stocks level on LME risen by 30% this year and in Shanghai inventories increased by 80% since the beginning of the year, that’s why this commodity turned out to be a major looser in metal complex, reporting nearly 5 loss on yearly basis. However in the last month, prices witnessed strong buying and it reached to $2400 level on LME, gaining by more than 14 percent.
According to International zinc and lead study group, over the first ten months of 2010, global zinc market noted surplus of 2,11,000 tonnes as supply exceeded demand, while inventory levels increased by 2,31,000. World zinc mine production increased by 9.9% with refined zinc metal production as output in China, Belgium, Brazil, India, Japan and Russia resulted an overall rise of 15.2% in global production. With production, overall global zinc demand rose by 17% as significant recovery of demand in Europe, Japan, Korea and strong growth in Chinese apparent usage was the main factor.
Next Month expected trading range for LME Zinc would be $2600/t-$2250/t
Another price positive development seen in lead prices with LME prices reached to $2500 level, gaining by 15 percent despite of rising inventories. Positive has seen due to unusually cold weather across most parts of Europe in November and December; this has resulted a 40% year on year rise in lead-acid battery sales in UK in last month. However, continues build up in stocks capping some upside with LME les stocks rise towards ten year high of 208,650 tonnes reached in May 2000. Currently stocks stood near 207000 tonnes, which rose by 30% in 2010 and nearly 2 percent in month of Dec. Further, reduction of 20 percent power supplies to lead and aluminium smelters to China’s top aluminium and lead producing province, Henan supported the short term rally.
Next Month expected trading range for LME Lead would be $2650/t-$2400/t.
In the conclusion, 2011 would be positive for base metals particular copper looks strong, may reach $11000 in the coming year. While nickel, lead and zinc also see positive movements. In the coming month, we expected copper to touch $10000 level on strong buying, while lead prices also see some firmness. Direction of zinc prices will depend on the inventory level as stocks are constantly rising. Our forecasts for nickel prices would be near $30000 in the next year, while lead prices would be around $3000 with zinc prices are expected to be around $2800 in the next year. For the month, correction is may take place in base metals prices, buying at lower would be profitable strategy for long term.
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