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OUR BUREAU
July 19: Base metals have been in the news for the last two weeks. The previous week saw aluminium, copper, nickel and aluminium alloy touching new lows on the London Metal Exchange (LME). While copper touched a 12-year low, aluminium was available at a 4-1/2-year low. Nickel in the same vein touched a 5-year low. However, the past week brought along some cheer for these base metals.
This was in the form of both the Japanese Yen and the Korean Won recording a smart recovery against the US dollar. In fact this, coupled with attractive valuations, attracted some buying from the US funds. The result: all these metals recovered by almost 5 per cent, each touching a one-month high.
Aluminium recovered from $1258 per tonne to $1315 per tonne. Copper also crossed the $1600 level and closed at $1,664 per tonne on Friday, showing a rally of $100 per tonne from its 12-year low. Nickel was up by $250 per tonne from its 5-year low. Following this bullish trend, other metals like lead, tin and aluminium alloys have July 19: Base metals have been in the news for the last two weeks. The previous week saw aluminium, copper, nickel and aluminium alloy touching new lows on the London Metal Exchange (LME). While copper touched a 12-year low, aluminium was available at a 4-1/2-year low. Nickel in the same vein touched a 5-year low. However, the past week brought along some cheer for these base metals.
This was in the form of both the Japanese Yen and the Korean Won recording a smart recovery against the US dollar. In fact this, coupled with attractive valuations, attracted some buying from the US funds. The result: all these metals recovered by almost 5 per cent, each touching a one-month high.
Aluminium recovered from $1258 per tonne to $1315 per tonne. Copper also crossed the $1600 level and closed at $1,664 per tonne on Friday, showing a rally of $100 per tonne from its 12-year low. Nickel was up by $250 per tonne from its 5-year low. Following this bullish trend, other metals like lead, tin and aluminium alloys havealso managed to record some gains. While the recovery in the international prices is a relief for the base metal producers, they are not sure whether this rally will continue.
The answer appears to be in the negative, simply because the current rally is mainly on account of purchases made by US funds, which analysts state, cannot be sustained unless the fundamentals improve drastically. Besides, the base metal prices had all fallen close to levels where a large portion of metal producers would have become unviable. That ultimately would have resulted in production cuts. Perhaps, the buying by the US funds is mainly on account of an anticipation of production cuts.
But on the other hand, metal prices appear to have a strong technical support around the levels from where the prices have bounced back. For instance, aluminium had strong support levels in the range of $1240-1260 per tonne.
However, as far as another rally is concerned, that can almost possibly be ruled out, given the need for a sharprecovery required in metal demand.
More importantly, while demand from Europe and America is likely to remain positive, outlook from Asia is far from impressive. A price recovery led from this region in the immediate future is unlikely simply because the South-east Asian economies are struggling with their own crisis witnessed in the last quarter of 1997.
Aluminium: The recent crisis has prompted aluminium intensive industries like automobiles and consumer durables to cut back on production in anticipation of sluggish demand. As a result of this analysts are projecting a 2 per cent drop in consumption in 1998. Of the total world consumption of around 187 million tonnes, consumption by the Asian region was around 15 per cent. In Asia, the demand is expected to see a 9 per cent dip in the current year. While the demand recovery appears unlikely in the short-run, what could help the aluminium producers is a possibility of production cut backs.
This is more likely as the drop in prices is seriousand any further fall in the prices would make production for most of the aluminium producers unviable. Thus these producers would have little option but to go in for a self induced production cut, which could keep prices within the range of $1260-$1350 levels.
Zinc: In the case of zinc, the International Lead and Zinc Study Group (ILZSG) has predicted a modest surplus in the current year. World zinc consumptions are expected to rise by 2.5 percentage points at 7.93 million tonnes in 1998. The expected reopening of mines in Canada and Tunisia in 1998 combined with expanded capacity elsewhere, would increase mine production in 1998 to 7.93 million tonne, an increase of 8.7 percentage points.
The refined metal output globally is also expected to increase by five percentage points. But, again, this would depend on the demand from South-East Asian countries, which is undergoing a recessionary phase. The fear of surplus in the current year would take some time to vanish, but till then, zinc will hoveraround $1,000-$1,100 per tonne.
Copyright © 1998 Indian Express Newspapers (Bombay) Ltd.
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