Year 2007 hitch: Base metals' high notes get drowned in subprime
While the beginning of the year saw metals ride a bullish wave the second half of the year spelt a lull with the sub-prime concerns and housing market recession in the US taking markets by storm.
By Deepa Krishnan, TNN |
MUMBAI: The year 2007 has been a roller-coaster ride for base metals. While the beginning of the year saw metals ride a bullish wave, the second half of the year spelt a lull with the sub-prime concerns and housing market recession in the US taking markets by storm. Nickel saw a new high at $51,650 in the April-June quarter of 2007.
In May, copper and zinc both slipped, hitting $8,330 and $4,170 per tonne, respectively. After this, the prices corrected drastically. As the year-end approached, traders began to eye potential demand slowdown especially in base metals. Hedge funds became major sellers, pulling down the metal prices along with that.
Copper, which started the year at an average rate of $5,730 per tonne, is averaging at close to $6418 per tonne in December, unable to reach the $8,800 high of 2006. Chinese imports, which were driving the prices higher last year and in the early half of this year, were reported to have slowed down. This is leading the copper prices along a downward trail from astronomically high prices mid-year.
The month-on-month decline in imports, led the bullish factors to correct. “This is still expected to continue,” says MAPE Admisi Commodity Research’s Debjyoti Chatterjee.
In July-September and October-December quarters, the stocks in London Metal Exchange were also much lower further easing pressure on the red metal. After hitting lows in August, copper once again bounced back to levels above $7,000 a tonne. The price which had consolidated on continued weakness in the market, was buoyed by profit taking in the international markets.
Zinc did not begin 2007 on a bullish note because 2006 was a great year for the metal due to some supply disruptions. The first half of the year levels were low as inventories were good. Also, some new projects were announced. Zinc could not reach the highs of $4,580 touched last September.
According to Angel Commodity Broking’s Harmit Virvadia: “2008 will begin on an average note for nickel and prices could range between $25,000 and $35,000. European demand could pick up. As far as copper goes, we are bearish for the first two months. After March, it will have to be seen how much copper China re-stocks. Zinc continues to look bearish.”
Currently, most metal traders are not keen to sell in anticipation of a better price. This would either mean that the demand would outstrip supply or there could be a supply shortage in the future. Also, exports, especially of copper, are seen to be lower from countries where the currency is strong.
Between January 8 and 14 in 2008, the Dow Jones AIG commodity index will adjust the weighting of many commodities including zinc, nickel, copper and aluminium traded on the London Metal Exchange (LME). The adjustment is likely to involve the purchase of about 250,000 tonnes of zinc and 10,000 tonnes of nickel.
In May, copper and zinc both slipped, hitting $8,330 and $4,170 per tonne, respectively. After this, the prices corrected drastically. As the year-end approached, traders began to eye potential demand slowdown especially in base metals. Hedge funds became major sellers, pulling down the metal prices along with that.
Copper, which started the year at an average rate of $5,730 per tonne, is averaging at close to $6418 per tonne in December, unable to reach the $8,800 high of 2006. Chinese imports, which were driving the prices higher last year and in the early half of this year, were reported to have slowed down. This is leading the copper prices along a downward trail from astronomically high prices mid-year.
The month-on-month decline in imports, led the bullish factors to correct. “This is still expected to continue,” says MAPE Admisi Commodity Research’s Debjyoti Chatterjee.
In July-September and October-December quarters, the stocks in London Metal Exchange were also much lower further easing pressure on the red metal. After hitting lows in August, copper once again bounced back to levels above $7,000 a tonne. The price which had consolidated on continued weakness in the market, was buoyed by profit taking in the international markets.
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Nickel, which was the dark horse in 2006, emerged as the largest gainer hitting an all-time high only to drop down drastically below to $25,000 levels in the July-September quarter with slowdown in stainless steel manufacturing where nickel is widely used. Also, China found a substitute for nickel called nickel pig iron which set the demand for the metal on a downslide. Zinc did not begin 2007 on a bullish note because 2006 was a great year for the metal due to some supply disruptions. The first half of the year levels were low as inventories were good. Also, some new projects were announced. Zinc could not reach the highs of $4,580 touched last September.
According to Angel Commodity Broking’s Harmit Virvadia: “2008 will begin on an average note for nickel and prices could range between $25,000 and $35,000. European demand could pick up. As far as copper goes, we are bearish for the first two months. After March, it will have to be seen how much copper China re-stocks. Zinc continues to look bearish.”
Currently, most metal traders are not keen to sell in anticipation of a better price. This would either mean that the demand would outstrip supply or there could be a supply shortage in the future. Also, exports, especially of copper, are seen to be lower from countries where the currency is strong.
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Mr Chatterjee says: “Copper prices are likely to remain range-bound in the short term despite signs of easing economic concerns in US and recovering Chinese demand due to lower prices. Zinc and Nickel prices are expected to be extremely volatile in January 2008 due to restructuring of Dow Jones Commodity Index and one could see sharp price fluctuations in due course.”Between January 8 and 14 in 2008, the Dow Jones AIG commodity index will adjust the weighting of many commodities including zinc, nickel, copper and aluminium traded on the London Metal Exchange (LME). The adjustment is likely to involve the purchase of about 250,000 tonnes of zinc and 10,000 tonnes of nickel.
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Zinc in the DJ AIG Commodity Index will next year account for more than 3% of the allocation, up from 1.4% as calculated at current prices. Nickel will rise to 2.8% from 1.7%. If prices rise between now and January 8, the amount of nickel and zinc that the index needs to buy will be lower.Start a SIP with as low as ₹500 with ET Money App!
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