VM mostly positive on metals prices for 2010

The latest Metals Monthly from the VM Group takes a generally positive view on the prospects for precious and base metals prospects in the year ahead.

Author: Lawrence Williams
Posted: Tuesday , 15 Dec 2009

LONDON -

The London-based VM Group's latest monthly analysis of the global Metals and plastics sectors, prepared for BNP Paribas/Fortis Bank, takes a pretty positive view of the year ahead for most metals - that is if you're a producer or investor rather than a consumer! Of course China is the key to all this as although there may be signs of a pick-up in OECD economies, and thus metals demand , as the year continues but, as they put it it is "China's rapacious appetite for base metals has shaped this market throughout 2009". They reckon that without China most industrial metals prices would be languishing at around half their current levels.

And, they reckon the China factor will continue through 2010 with the Chinese government's indication that it will maintain a relatively loose monetary policy through the year and they point to Chinese 2010 growth forecasts of upwards of 9%, which will keep metals demand strong. The other BRIC economies may also contribute and they conclude that "the year ahead is unlikely to see much price weakness for base metals - if anything, the reverse."

The analysts also reckon that the speculative element in metals price investment will also continue to rise through the year given the likelihood of a virtually zero interest rate environment in most major Western countries throughout the year. This will likely keep the dollar relatively weak which could see metals prices challenge their 2007/2008 highs. But, they warn, this scenario could be upset if high inventory levels and a threat of oversupply come to the fore as miners ramp up production to benefit from the higher price levels.

PRECIOUS METALS

The analysts are fairly positive on gold, and by relation on silver, despite the recent price dips. They see gold prices remaining firm overall until there is a more stable global economic environment, but warn of increasingly choppy markets ahead. Silver they saw as underperforming gold on the way up to its recent highs, but overall they are more positive on silver than on gold given its greater industrial usage element and the continuing development of new usage for the metal.

There's a little nervousness on platinum and palladium prices going forward though, particularly as auto sales outside China are not viewed positively yet - particularly with EU scrappage policies coming to an end. Platinum has been supported by the Chinese jewellery market but there is uncertainty as to whether this can continue at these levels. Palladium on the other hand is seen as having fallen back although supply/demand fundamentals may have improved a little. Chinese demand for its rapidly growing auto sector has been important but the analysts express uncertainty about the medium term outlook for Chinese auto sales growth can be maintained.

BASE METALS

Given that weakness in supply/demand fundamentals has done little to deter the copper price reamianing stronf at, or close to, the $7,000 a tonne level, longer term prospects are seen as positive and speculative investment demand likely to continue as well. The analysts reckon that there's little ahead to change this perception and are bullish on the price for the red metal long term.

Aluminium is seen as more difficult to judge. Demand appears to be improving, albeit slowly, but production is also rising perhaps at an even greater rate. Stocks are seen as high and the analysts view price prospects as relatively mited in the year ahead unless stocks are seen to come down dramatically.

Nickel they view as remaining a puzzle. Prices have been relatively strong - although still well short of the levels of a couple of years ago. LME stocks are at a high level - and rising - and some big new supply sources are due on stream in the next couple of years. However the global nickel market was in deficit in Q3 2009 and is fairly balanced in the current quarter. But with the new supplies, unless there is a big improvement in demand from the stainless steel sector prospects are not as positive as for some of the other metals.

Lead and zinc are seen as tracking copper and the zinc price in particular is likely to continue to follow this trend so the analysts predict. They feel that lead, on the other hand, will come off the boil in early 2010 as supply builds and demand may weaken..

Tin is looking positive as Indonesia is again pledging to reduce output in 2010, while demand appeasr to be picking up. The scenario for 2010 is for stronger prices especially if OECD countries recover more normal rates of economic growth.