ANALYST VIEW-Copper to lead metals up, aluminium outlook dims
Wed Jul 15, 2009 6:34pm IST
Positives will be Chinese apparent demand and (possibly very slow) recovery in Western demand. Speculation will also play a part, as it has done over the past few months.
Negatives will be a slower than anticipated recovery in global demand, while further shocks in the financial sector will also knock prices.
The huge Chinese restocking exercise may also dampen prices ahead, especially for aluminium and perhaps copper -- although copper's long-term structural supply issues will be supportive.
The dollar -- by end-2010 there will be pressures (political and economic) to begin tighten interest rates in order to avoid over-inflating the economy. This will lead to a stronger dollar and thus help keep commodity prices down.
Essentially the rally in base metals has been based on Chinese apparent demand, as Western demand is weak and is expected to remain weak going into Q4 2009, at least.
We remain cautious as to the extent of real Chinese demand, since a large proportion of metal has gone into restocking programmes.
GAYLE BERRY, ANALYST AT BARCLAYS CAPITAL
A potential slowdown in Chinese imports is the single biggest risk to metals prices over the second half of the year. Metals are also extremely sensitive to macro developments so economic sentiment and data will be a key influence on price movements.
With China now largely restocked, the next big leg up in prices will come from the restocking cycle in the OECD, in our view. We are looking for this to emerge in late 2009/early 2010.
Aggressive destocking exacerbated the apparent decline in demand so when this comes to an end, consumers will again return to the market. I believe that's what we are already beginning to see develop in the OECD.
We see the potential for a big increase in demand for all base metals in early 2010 which we believe will be the foundations for the next leg up in prices.
WANG ZzHOUYI, ANALYST AT SHANGHAI CIFCO FUTURES
The most important factor is the health of the macroeconomy. U.S. dollar will continue to play a role. China's consumption is another important factor, reflected in trade data and production of wires and cables.
The recovery may come at earliest in the fourth quarter of this year. The consumption now is stable. In the first half of the year, most of the growth in metals prices came from influences from the economic stimulus plan and growing confidence in the economy. I haven't seen much strong growth in end-user consumption.
In terms of copper, the most important region is still China. The most important products are wires and cables. Home appliances may also play a role, albeit not a major one. U.S. new home construction also deserves attention.
Funds have always been an important player in the market. The trend in metals has been largely correlated to the movement of speculative money, part of it is operated by funds.
MITSUI BUSSAN COMMODITIES Expectations of a substantial recovery in demand for consumer goods in the western world economies will be dampened by continued high unemployment and a rising savings rate, while credit conditions are unlikely to improve quickly.
Investment fund activity, while diminished due to redemptions, will continue to be attracted to the commodity space as an ongoing hedge for the threat of dollar weakness and related inflationary expectations.
Aluminium supply has been severely curtailed with about 5 million tonnes per year production cutbacks. This has not prevented LME stocks rising above the 4 million tonne mark.
However, the recent price rally prompted smelters, especially in China, to resume production and this could temper the short term tightness caused by warehouse financing arrangements. The Chinese government's recent announcement that it will halt further stockpiling is likely to slow metal imports even in the face of domestic fiscal stimuli.
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