Base metal prices to rise on positive signalsInvestment in...

Base metal prices to rise on positive signals

Investment in infrastructure may take a fillip to help push metal demand in 2014

Dilip Kumar Jha | Mumbai
December 21, 2013 Last Updated at 00:12


The US Federal Reserve’s recent tapering of its massive bond buying programme (termed QE) and the strength in dollar indices is likely to pull down dollar-denominated commodities such as base metals, albeit for the short term.

However, as 2014 passes by and the positive signals of the global economies strengthen, metals will rebound on rising demand for use in the infrastructure and housing sectors, which move in tandem with the economy. The US Fed has said it will cut back bond purchases by $10 billion to $75 billion a month from next month. The decision indicates a recovery in the US economy, supporting overall demand growth for base metals.

After a growth up to 24 per cent in 2012, base metals (led by nickel and aluminium) had a drastic decline in 2013, due to poor demand from consumer industries on a weakening global economic sentiment. The world’s largest consumer, China, reported lower economic growth, followed by a similar trend in the US, the second largest consumer.

While the price of nickel reported an 18 per cent fall to $14,035 a tonne, aluminium and copper posted a decline of 14.2 per cent to $1,749.5 a tonne and 8.7 per cent to $7,230 a tonne, respectively. In India, however, base metals’ prices were up by up to 11.6 per cent due to weakness in the rupee against the dollar. The rupee depreciated by 13 per cent to close at 62.12 a dollar on Thursday from 55 on January 1.

“A volatile 2013 saw copper, lead and zinc move up, while nickel and aluminum remained under pressure on weak fundamentals. Going ahead, 2014 could see the global economy recovering and demand for base metals should rise, especially in major consumers, the US and China. Revival in growth will lead to demand for base metals,” said Jayant Manglik, president, retail distribution, Religare Securities.

Waning demand resulted in piling up of inventory on warehouses registered with the London Metal Exchange, by up to 16 per cent in 2013, barring a few. Zinc and nickel prices should outperform among the base metals with support from Chinese consumption.

Therefore, supply-side concern can take nickel prices up. Demand for battery-operated cars from China and other Asian countries could lead prices during the year. Again, copper depends on Chinese demand but there is enough supply in the markets. Therefore, one should buy only on corrections, said Manglik

Starting with recovery in the advanced economies, it is important that even though a bounce -back has been seen, it is regarded as fragile, indicating the nature of the ongoing stimulus spending and low interest rates.