The Hindu Business Line : Prospect of output losses may fire base metals

Getting hotter
Chronic tightness in nearby availability of copper seen.
Copper was star performer with a rise of 9% in prices
The second half of the year may face 25,000 tonnes deficit in nickel.
Copper, nickel, zinc stocks at warehouses continue to fall.

Mumbai , July 30

Players in the base metals market are on tenterhooks. Already hot, these commodities seem to be ignited by the prospect of output losses.

The market - be it copper, nickel or zinc - is facing increasing uncertainty with threat of supply disruptions looming large.

No wonder, base metals prices were all stronger last week.

Star performer

Copper was, of course, the star performer with a rise of nine per cent in prices following reports of possible supply disruptions due to labour negotiations and/or technical problems like conveyor breakdown.

The world's largest copper mine Escondida produces approximately 1.3 million tonnes (mt) of copper concentrates a year. It is crunch time for negotiations.

Even if it were to go on a 2-week strike, production to the tune of 50,000 tonnes could be lost, that too at a time when stocks are running low.

Stocks warehoused at exchanges are an estimated 160,000 tonnes only and at other places rather low.

In what is already a tight market, any interruption in supply, even if brief, would have a disproportionately large impact on prices.

It is also reported that due to conveyor breakdown, production from a copper mine in Chile may not be resumed for several weeks.

On the other hand, concerns remain about the outlook for 2007. Expectation of slower global demand growth and the potential for the copper market to get into surplus next year cannot be discounted. However, these concerns are being pushed to the background in the face of continuing chronic tightness in nearby availability.

On Friday, copper closed at $7,736 a tonne LME (cash) and 3-month at $7,670/t. Based on charts, technical experts suggest that the copper market would face choppy erratic conditions over the next two months.

Deficit in nickel

A similar script is running for nickel. The second half of the year is projected to face a deficit of 25,000 tonnes and stocks are really low at 7,000 tonnes, which will not be sufficient to meet demand.

Now comes the news of a possible workers' strike in an important production centre for a market that already looks stretched.

In Canada, Inco announced an orderly shutdown of its nickel mine due to strike by unionised workers.

On Friday, nickel prices received a boost. LME cash prices closed at $25,975/t, up from $25,050/t the previous day.

Stocks at the exchange continue to fall. So, both copper and nickel looks as though they have further upside in the near-term.

Zinc

Even in zinc, where there are concerns about outlook for next year, the market is looking extremely tight for the remainder of the year with upside risks to prices.

On Friday, on LME, zinc (cash) closed at $3,297/t, up $70/t from July 27 and 3-month at $3,300/t. Zinc stocks are falling too.