You'll like this one, too:
Fundamentals support higher price for metals
Next 2 quarters to decide shape of demand growth
--------------------------------------------------------------
In store
- Aluminium prices are expected to soften and it is more likely around the first half of next year.
- Copper prices are unlikely to fall below $7,000 a tonne in the near-to-medium term.
- Tightening market situation can lead to spurt in the zinc prices.
- Steel prices are likely to correct by 3-5 per cent before the end of the year.
--------------------------------------------------------------------------------
Chennai , Sept. 30
Concerns over softening metal prices have been overdone and fundamentals support a high price regime in the near-term, Edelweiss Capital, a Mumbai-based financial research firm, said in a report.
However, the key factor to watch out for in metal prices will be demand growth, instead of supply side response. Any slowdown in global demand growth rate will lead to weakening demand for metals; and swing markets from deficit to surplus, suppressing the prices.
"The next two quarters will have to be watched more closely for the shape the demand growth rate curve assumes," Edelweiss said in a research note.
Aluminium
The run-up in aluminium prices has been more on the basis of alumina shortage driving up the market rather than the shortage of smelter capacity. The alumina cycle has turned down and aluminium continues to rule high. Global aluminium demand continues to grow at a brisk pace and there are some concerns over slowing US housing.
"With energy prices remaining high, the cost structure of smelters is expected to soften only by about 15-20 per cent on lower alumina prices," the research firm's analyst, Mr Pritish Vinay, wrote in the report.
Aluminium prices are expected to soften and it is more likely around the first half of next year. As per a consensus view reached at last week's Metal Bulletin Aluminum Conference last week, the prices should hover in the range of $2,200-2,500 a tonne. Till then, the prices are expected to be firm. On Friday, aluminium for December delivery closed at $2,501, almost flat this year.
Copper
Copper prices have increased nearly 40 per cent this year, with the December delivery closing at $7,805 a tonne on Friday. According to Edelweiss, the copper market has been influenced by continuous flow of supply disruption-related news over the last one year. On the demand side, some amount of substitution has set tin and global copper consumption has slowed down by 1.1-5 per cent in the first half of this year.
Copper inventories of 1.22 lakh tonnes are enough to meet only two days of global consumption and this is acting as a key floor to any sharp correction in prices. There has been some unwinding of speculative fund flow in copper markets that has led to part correction in prices. However, copper prices are unlikely to fall below $7,000 a tonne in the near-to-medium term, according to Mr Vinay.
On the other hand, the copper concentrate market continues to remain tight leading to softening of treatment charges.
Zinc
Zinc prices around current level of $3,420 a tonne are up 27 per cent this year. Fundamentals in the zinc market continue to be strongest among all the three base metals. Continued buoyancy in demand, lack of incremental supply growth and consistently dwindling inventories point to a tightening market situation that can lead to spurt in the prices.
Zinc inventories of 1.44 lakh tonnes is enough to just about meet five days of global demand and the metal could witness the trend that was seen in nickel earlier this year. A very bullish situation is brewing in the zinc market, according to the research firm.
Steel
Steel prices are likely to correct by 3-5 per cent before the end of the year before stabilising from there. This is since the cost structure is not easing and strong demand growth is continuing.
Prices in China are showing signs of rebounding after falling, while prices in Commonwealth of Independent States (CIS) have improved in the last two months. Steel mills in Europe and the US are booking orders for the last quarter at prices 8-12 per cent higher than current rates, though prices in India have been cut.
However, the silver lining for Indian producers is that China has cut the export tax rebate for its mills to 8 per cent from 11 per cent and it will render Chinese steel uncompetitive.
thehindubusinessline.com |
