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G. Chandrashekhar

Prices underpinned by inflation concerns, global growth prospects

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Mumbai Feb. 25 Benign macroeconomic conditions as reflected in rising demand, upward movement in the energy market and emergence of geopolitical concerns all combined last week to push the metals complex up.

Both base metals and precious metals had a wonderful time last week with prices registering robust increases. Spot price of gold in London was $683 an ounce on Friday, registering a $20 hike in price in a week's time. It is only 5.8 per cent below the peak of $725/oz witnessed on May 12 last year.

Prices were underpinned by heightened concerns over inflation owing to higher oil prices and stronger global growth prospects. Geo-political concerns relating to Iran's nuclear program and softer dollar against major currencies were contributory factors.

Barrick Gold, the world's largest gold producer, announced on Friday that it expects to produce between 8.1 million and 8.4 million ounces of the yellow metal in 2007, down from 8.64 ml oz of 2006. Also, cash costs are seen rising from $282/oz in 2006 to $335-350/oz in 2007. Technically, the precious metal has breached the resistance.

Target

Analysts are looking at the target of $700/oz. Oil prices pushed further with WTI front month breaking through $61 a barrel. The move was supported by set of positive US weekly oil data. Product inventories are falling due to robust demand. Iran events further bolstered the market. Iran has not suspended uranium enrichment activities as demanded by a UN resolution last December.

"The path of events is drifting towards more confrontational approach and therefore, geopolitics will remain a strong supportive factor going forward," warned an analyst.

Positive run

Not to be left behind, most base metals had a positive run in the market. Copper prices breached $ 6,000 a tonne for the first time early January this year. Broadly, strong Chinese demand following last year's de-stocking as well as positive macro-economic environment helped copper price buoy. Technical picture is also providing support.

Aluminium prices too have moved sharply higher breaking through $2,800 a tonne on Friday. On Thursday, lead and tin prices set record highs — $1,890/t and $13,975/t — underpinned by LME inventories and supply disruptions.

Indeed, lead prices broke through $ 1990/t on Friday due to another draw down in LME stocks and broader positive sentiment towards metals.

After breaching $ 40,000/t, nickel prices retreated. But low inventories support firm prices.

Zinc too gained. Overall, energy and metals markets are again beginning to see action on the price front. Reduced growth concerns around the world and robust Asian demand combine to push price higher. The positive streak in the metals and energy markets is expected to continue.

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