Recovery for base metal prices falters
Posted by tjdetai on July 21st, 2015
By Chris Flood in London , Financial Times, 11 Oct 2009The rally in base metal prices this year has stalled in recent weeks as concerns mount over whether consumption in the developed world will pick up enough to offset any short-term weakening in Chinese demand.Base metal prices on average have risen 72.8 per cent since the start of the year, according to the London Metal Exchange.However, copper, aluminium, nickel, lead and tin prices have either fallen or remained rangebound since the start of August. Only zinc has managed to make further gains.The pause comes in spite of weakness in the dollar, which has pushed gold to an all-time high and supported other commodities.Commodities typically tend to benefit from a weaker dollar because it makes them more affordable to non-US consumers."We must not be fooled into thinking that the gains we have seen [since January] are a natural precursor to even better prices ahead," said Nick Moore, a commodity strategist at the Royal Bank of Scotland, as traders, analysts, merchants and mining executives gather today for this year's LME week.Mr Moore pointed out that there were still "massive" supply surpluses and "huge inventory mountains" to be eroded.LME warehouse stocks have risen 84 per cent this year to a record of more than 5.6m tonnes, valued at more than bn. Estimates for stocks in China vary, but total reported global inventories are estimated to be more than 9m tonnes.China's government acquired significant stocks of base metals in the first half of this year to support its domestic smelting industry as part of the government's stimulus programme. Restocking activity followed elsewhere in Asia, but it has not spread into western Europe and the US as yet.Michael Jansen, of JPMorgan, said that he expected increases in metals stocks would be a "significant hurdle" to further price gains.RBS notes that the rebound in base metals prices has proved far more aggressive than the rallies of 1975 and 1982 which also followed big increases in oil prices. In 1975, metals prices rose 30 per cent from their trough, then relapsed, while in 1982, the market rallied by 42 per cent then retreated for a further 27 months.
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