Base metal markets "temporarily stalled"

Tag : base metals

The past several months of economic uncertainty have taken theirtoll on base metals. While copper has held up well, other metalssuch as nickel and zinc have plunged back to earth.
In a research note titled "Seasonal Weakness or End of theCycle?," Paradigm Capital analysts Dave Davidson and JacobWilloughby take the view that most of the base metals are"adequately priced" based on their current supply/demandsituation. But they also revised their price targets on most metalsupward to reflect the rapid rise in capital and operating coststhat is plaguing the mining industry.
The analysts pointed out that the U.S. economy, if not already inrecession, is certainly close to one. As well, there are legitimateconcerns about how well Chinese demand for metals will hold up. Butthey also noted that the movement of bulk commodities around theworld continues at near-record levels.
"While the miracle of global synchronized growth hasdissipated, we are of the strong belief that after a few quartersof slow, but positive growth, the world's economy will re-engageand continue to fuel the global commodity boom. It is our view thatthe commodity cycle has temporarily stalled, not ended," theywrote.
They noted that inventories for most metals remain low, though leadand zinc are two exceptions. But they "fully expect"prices to consolidate around these low levels over the next coupleof quarters (though with plenty of volatility).
They have raised their mid-term and long-term price targets forcopper, zinc and nickel, while also making some minor upwardrevisions to lead and cobalt. In the case of zinc, they added tothe speculation that more mines will close because of the highprices, saying they fully expect some "high profileclosures."
These are their average price forecasts (per pound of metal):
Copper
2008: US$3.35
Long-term: US$1.75
Zinc
2008: US$1.00
Long-term: US80¢
Nickel
2008: US$12.00
Long-term: US$7.00

Lead
2008: US$1.05
Long-term: US70¢
Peter Koven