The Hindu Business Line : More downside risks for metals in Q4

Mumbai, Oct 9 While commodity prices have fallen across the board, metals seem to have taken the biggest hit, primarily because of growth concerns and slowing consumption demand. From the highs of first and second quarters of 2008, the current rates are anything between 20 and 40 per cent lower for aluminium, copper, lead, nickel, tin and zinc.

Slowing economic growth in major industrialised countries (the US, Eurozone) has not spared Asia either. Signs of Chinese metals demand slowing are evident. The market may have entered a new phase with slowing demand, financial sector worries and uncertainties relating to movements of the dollar.

Difficult months

The macroeconomic environment will undoubtedly have an implication for metals prices. Where are metals prices likely to go from here? “Metals markets undoubtedly face some difficult times in the months ahead, but the structural changes that have taken place in metals supply and demand in recent years leads us to believe that this will prove to be more of a pause than a peak in the current price cycle,” Barclays Capital has said in a research report.

Asserting that a weaker demand outlook means a weaker pricing environment, analysts said China and the emerging markets are still dominant forces, but the changing economic landscape has clouded the outlook. There is already evidence of slowing metals demand in China, contrary to earlier expectation, and it is no wonder that downgrades have been made for metals consumption for the rest of the year.

Diverse outlook

Although cuts have been made to its price forecasts for most base metals and some precious metals, Barclays Capital conceded that fundamental outlook across markets was still a diverse one. In markets such as zinc and nickel the output cuts that now look necessary to balance the markets suggest a lengthy period of attrition and low price levels, the research report pointed out adding that in tin, copper and aluminium, supply growth is already constrained by shortage of raw materials and other inputs such as energy.

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