Friday July 13, 8:41 am Eastern Time
Base metals chart course for Q4 recovery
biz.yahoo.com
LONDON, July 13 (Reuters) - Base metals will have to wait until the end of the year for the end of the current bear trend, which reflects the downturn in the global economy and paltry consumer demand, analysts polled by Reuters on Friday said.
The consensus points to an initial recovery in the fourth quarter of this year, which marks a departure from forecasts made at the begininng of 2001, when analysts were looking for an increase in prices by the end of the second quarter.
``The worsening short-term economic outlook has resulted in us pushing back the turning point for base metals prices. We now expect no concerted recovery until Q4 2001,'' Kevin Norrish at Barclays Capital said.
The median forecast of a Reuters poll of up to 13 world metals and mining analysts showed all metals falling well below the median in 2000, while the median for 2002 was expected to outstrip 2000 for all metals except nickel, tin and zinc.
CONSUMERS HOLD THE KEY
The metals remained at the mercy of the hedge funds, and the key to a solid price rise lay in the hands of the consumer.
``For the base metals in general, the lack of confidence at the consumer level and falling order rates have left the markets wide open to speculative selling pressure from the funds,'' Maqsood Ahmed of Credit Lyonnais Rouse said.
``The expected timing for this (the recovery) has now shifted to the fourth quarter, but given that these are predominantly speculative positions, there is the possibility of rallies taking place sooner than expected,'' he said.
``Thus downside is limited from here and the risk is upwards.''
With interest rates declining, supply of some of leading metals such as copper and aluminium might be restricted once end-user offtake picked up, but some analysts were sceptical as to consumers' appetites.
``We are very cautious about the likely levels of demand that we will see next year,'' Ted Arnold of Prudential Bache said.
``If demand strength is not there, it really doesn't matter what sort of bullish fundamentals one has on supply deficits or losses of production or low scrap availability. In the final analysis, high average metal prices only come from a high and sustained level of demand,'' Arnold said.
ECONOMIC TIDES TURN
At the beginning of the year, the metals were relying almost soley on the United States getting a clean bill of economic health to resume their bull trend, particularly in aluminium.
Negative data out of the United States followed, but recent figures on manufacturing activity, consumer confidence and durable goods orders had begun to appear more positive.
``If strong growth can be generated in the U.S. in the fourth quarter of this year, then the positive impact on global demand should be felt worldwide in 2002, which would lead to further gains in metal prices, with a potentially explosive impact for aluminium because of the recent capacity shutdowns,'' Lawrence Eagles of GNI Research said.
Surging power prices in the Pacific Northwest forced closures of aluminium smelters in the area, cutting 1.5 million tonnes of capacity, and plants were unlikely to restart in the next two years.
However, aluminium was forecast to fall below 70 cents a lb on a London Metal Exchange (LME) cash basis in 2001, its lowest since 1999, when prices averaged 61.80 cents.
Slowing demand in Europe and Japan would all but offset the reductions in North American supply as inventory levels continued to pile up, analysts said.
``If you look at the LME, aluminium stock levels are still rising. Eight percent of capacity has been taken out, but still stock levels are rising. It shows how much the demand has collapsed and this is from an industry that was growing at four percent a year,'' Dave Hall of Merrill Lynch South Africa said.
In copper limited mine production growth and the prospect of significant re-stocking from consumers should provide a boost for the flagging price, which was now at two-year lows.
Copper was forecast to average 76.1 cents a lb in 2001, down over seven percent from 2000, but prices were expected to reach 86.5 cents a lb in 2002.
NICKEL LAGS
Trailing the field were the smaller metals, which may not fare so strongly in 2001 or 2002, with the exception of lead, which was forecast to rise by nearly seven percent this year.
Faltering demand from the stainless steel industry this year caused analysts to slash their nickel price forecasts by almost 25 percent to 295 cents a lb for 2001.
``The strength of the dollar has played a role in the continued weakness in prices. The problem is a particular concern where U.S. dollar-denominated producers only accocunt for a small proportion of global production - nickel tin and zinc,'' Robin Bhar of Standard Bank London said.
PROJECTED AVERAGE PRICES
(Cents per lb)
* Aluminium 69.8 in 2001, 78.0 in 2002 (70.3 in 2000)
* Copper 76.1 in 2001, 86.5 in 2002 (82.2 in 2000)
* Lead 22.0 in 2001, 24.0 in 2002 (20.6 in 2000)
* Nickel 295.0 in 2001, 315.0 in 2002 (391.8 in 2000)
* Tin 225.0 in 2001, 240.0 in 2002 (246.4 in 2000)
* Zinc 43.5 in 2001, 46.2 in 2002 (51.1 in 2000)
For details of the poll double-click on |
