Base Metals:
What the Future Might Hold
The base metals bull market persists with largely unchanged fundamentals and prices in most
sectors continuing to rise. Throughout the last quarter, prices have continued to demonstrate
incredible volatility. Here, LME ring-dealer Natixis Commodity Markets (NCM), the commodity
trading arm of leading investment bank Natixis, offers its base metals projections for the rest of this
year and into 2008.
THE PRICE OF lead (in euros) has soared by 186% since July 2006 –
or by 211% in USD terms. The price of nickel reached an all time
high of US$54,200/tonne on May 16
th
, only to have fallen sharply
since. Evidently, the individual metals have been performing inde-
pendently of each other and there has been no single factor leading
the market in one particular direction.
Nevertheless, there remain common factors that significantly influ-
ence the performance of several base metals. Supply tightness con-
tinues to be an important feature of this ongoing bull market, lending
further weight to the commonly held belief that a lack of investment
5-10 years ago has created ongoing structural impediments to a well-
stocked market. Indeed, the fact that treatment charges in both lead
and copper remain low suggests that the concentrate producers are
far from awash with ore.
... there has been no single factor leading the
market in one particular direction
In terms of demand, global markets continue to show a lack of syn-
chronicity, meaning localised consumption dips do not lead to sharp
reductions in global demand. In general, US demand has been weak
in 2007, while European consumption and healthy Chinese and
Indian metals-intensive growth has prevented the US figures from
having too detrimental an impact on prices.
Lead
With the breaking of the psychologically significant
US$3,000/tonne barrier in July, the performance of lead has exceed-
• Global lead mine output for the first half of 2007 was 3%
ed even the most bullish of expectations. Indeed, the metal set a
higher than during the corresponding period of 2006. This was
record average of US$3,084/tonne for that month, against an aver-
primarily due to increased production in China, Peru, the Russian
age price in June of US$2,425/tonne – up from US$2,100/tonne in
Federation and Sweden which more than balanced falls in
May, and US$963/tonne in June 2006.
Australia, Iran and Mexico.
This price rise is predominantly down to supply tightness, which in
• World production of refined and metal rose by 2.2%. In
recent months particularly has worsened, largely due to production
Europe, output increased by 1.1% despite a sharp fall in the
problems at the concentrate stage. LME inventories remain under
United Kingdom. Production was also higher in China, India,
50,000 tonnes, despite the amazing price advances – a level which
Morocco and the United States.
leaves the market vulnerable to supply concerns.
Australian lead production has suffered with a variety of strikes
• An increase in global usage of refined lead metal of 2.9% was
and technical problems impacting on most of the leading producers.
largely influenced by further demand growth in China (21%).
Australian mine output in May fell to 46,900 tonnes (from 51,300
Usage in Europe was similar to that in the first half of 2006 but
tonnes in April), a figure which itself shows a significant drop from
was lower in both in Japan (-12.3%) and the United States (-7%)
60,600 tonnes in March 2007. This dip was expected, due to the
• Chinese net imports of lead contained in lead concentrates
shutdown of Ivernia’s Magellan mine, and at present there is no
increased by 29%. In contrast, the country’s net exports of
clear timetable for the resumption of operations. NCM’s figures
refined lead metal decreased by 49%.
incorporate the assumption that the mine will be back onstream
ILZSG preliminary data, August 2007.
COMMODITIES NOW SEPTEMBER 2007 65
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