Commodity Strategists: Metals to Rise on Demand, Deutsche Says
2006-04-12 01:31 (New York)
By Tan Hwee Ann
April 12 (Bloomberg) -- Copper, zinc and other base metals
will average 14 percent more than forecast this year because of
supply disruptions and rising demand from both consumers and
investors, said Deutsche Bank AG, Germany's largest bank.
Cash prices for copper, used in making wires and pipes, may
average $5,423 a ton, or $2.46 a pound this year, from $3,681.3
last year, Deutsche Bank analysts led by Peter Richardson said
in a April 11 report. Deutsche raised its copper price forecast
by 20 percent from a January prediction.
Copper and zinc reached records yesterday in London as
metal producers struggle to meet demand led by China amid
declining stockpiles and mine stoppages. The International
Monetary Fund may raise its forecast for global economic growth
this year, buoyed by expansion in Japan and the rest of Asia.
``Rising global industrial production and continued supply
constraints against the backdrop of low inventory levels is
having a major impact on price levels,'' the Deutsche analysts
said. There is ``a strengthening market conviction that prices
will remain high for considerably longer than was anticipated
earlier in the cycle,'' they said.
Richardson, 57, has covered commodities for 30 years,
spending the last seven at Deutsche Bank in both London and
Melbourne. He was the fifth-ranked analyst for commodities in a
November survey published by BRW magazine in Australia.
The Reuters Jefferies CRB Index of 19 commodities, which
includes copper and nickel, has gained 12 percent in the past
year, compared with the 8.9 percent gain in the Standard &
Poor's 500 Index.
Record Prices
Deutsche raised its 2006 average price forecasts for zinc
to $2,793 a ton, or $1.267 a pound, which is double last year's
price. The 2006 average price prediction is 27 percent higher
than the bank's January forecast. Zinc is used to galvanize
steel.
The bank also raised its forecasts for nickel by 9 percent
to $15,518 a ton, or $7.039 a pound. That is a 5.1 percent gain
from 2005's average prices. Nickel is used in the making of
stainless steel.
Commodity prices will resume a four-year rally after
falling since January, underpinned by economic growth and higher
energy prices, Lehman Brothers Holdings Inc. strategist Jack
Malvey said March 16. Investors should buy gold, silver and
palladium, not copper, because supply constraints will spur
bigger price gains for the three precious metals, JPMorgan Chase
& Co. strategists said in a April 7 report.
World Growth
Cash prices for copper closed at a record $6006.5 on the
London Metal Exchange yesterday, having gained 32 percent this
year. Cash prices for zinc yesterday closed at a record $2987.5
a ton on the exchange, up 57 percent this year.
Copper production has stalled at mines in Mexico and
Myanmar, and inventories monitored by London, New York and
Shanghai are equal to less than four days of global supply. Zinc
stockpiles tracked by the LME have plunged 53 percent in the
past 12 months.
``Permitting delays, supply chain scarcity and rising labor
and capital costs of expansion are putting additional strain on
producers' ability to respond to strong demand growth,'' the
Deutsche report said. This year marks the fifth year of rising
base metal prices spurred by above-trend industrial production
growth in Brazil, Russia, India and China, it said.
IMF Forecast
The IMF may increase its projection for world growth to 4.9
percent from a Sept. 21 estimate of 4.3 percent, according to a
presentation April 3 in Cambodia. The world economy grew 4.8
percent last year, according to the IMF presentation, higher
than the fund's Sept. 21 estimate of 4.3 percent. The global
economy is expected to expand 4.7 percent in 2007, the
presentation said.
China, whose economy overtook the U.K. as the fourth-
largest last year, has averaged 9.1 percent economic growth
annually for a decade. It is expected to account for 63 percent
of global industrial production in 2006, Deutsche said.
Demand worldwide for metals is expected to grow, as
``growth in China also remains robust,'' and ``the outlook for
the U.S. economy from a commodity market perspective remains
supportive,'' Deutsche said.
China is the world's largest consumer of copper, zinc,
aluminum, iron ore and steel, and is using more of the metals to
feed its need for cars, buildings and steel products.
Futures contracts prices for metals have also jumped,
narrowing the spread between cash prices, indicating that users
of the metals are keen to secure supplies for the future,
Deutsche said.
`No Cushion'
``In an environment of persistently strong demand and tight
supply where there is no cushion of surplus production capacity,
the demand for inventories to cover both current and future
demand has increased,'' the bank said.
Investors demand for commodities have also driven up prices,
the bank said. Fortis Investment Management, which oversees
about $123 billion of assets, this year said it plans to start a
commodity fund. Hermes Pensions Management Ltd., overseer of the
U.K.'s No. 1 pension fund, is investing 1 billion pounds ($1.8
billion) of BT Group Plc's retirement plan in commodities in its
first such investment.
--Editor: Gosman |
