LONDON (AFP) - After posting record gains this year, most base metals will see prices drop in 2006 as supplies improve, according to analysts attending a London conference this week.
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Base metals have seen their prices rocket in 2005, notably copper which reached a historic high point of 4,000 dollars per tonne in London trading at the end of October.
However prices are beginning to fall and risk extending losses next year, analysts gathered at London Metal Exchange week said.
"Base metals have benefited from a number of factors over the past two to three years, notably the structural support offered by the industrialisation of China, cyclical strength in the US economy and a sluggish supply response," said Alan Williamson, HSBC's head of commodity research.
"All combined to push the markets into deficit and industry stocks declined, falling to critical levels in a number of metals."
However "over recent months, a more discerning tone has become
apparent in the base metals markets", Williamson noted.
"Worries over higher interest rates and higher oil prices have depressed sentiment, despite the fact that actual global economic activity has remained robust."
Williamson added that the greatest downside would be to copper and nickel, the metals that have enjoyed the greatest rises in recent times.
According to HSBC forecasts, nickel prices should drop by 20 percent in 2006, copper by 14 percent, tin (13), lead (12) and aluminium by 2.8 percent. Zinc was expected to steady.
Since reaching 4,000 dollars per tonne on October 20, copper prices have dropped by 2.5 percent to around 3,900 dollars. Aluminium has lost 1.6 percent during the same period while zinc has gained 0.7 percent.
Zinc has rallied recently as the "market has focused on the likelihood that the reduction in inventories should accelerate in 2006", Natexis analysts wrote in a research note.
The price of zinc, used by the building and car industries, as well as for making domestic appliances, is being traded at around 1,500 dollars per tonne -- the highest level since 1997 -- owing to consumption outweighing production.
As for copper, stocks of the metal are at the lowest level for 30 years -- a factor behind its price rocketing by 40 percent this year.
Production of the copper -- used in electrical cables -- would exceed demand by 150,000 tonnes in 2006 compared to a shortfall of 250,000 tonnes this year, Societe Generale analyst Stephen Briggs said.
Finally nickel will continue to plummet further. After tumbling from a 15-year high point of more than 17,000 dollars per tonne in 2004, the metal was forecast to slump to 9,400 dollars next year from an estimate of 14,000 in 2005, according to CRU analysts.
