Copper, aluminium may gain
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Despite forecasts for slower US economic growth, a slate of mitigating factors should lessen the impact on copper and aluminium prices, with price increases forecast for aluminium, alumina, and copper in 2009, according to a Citigroup research note.
Though sharply slower US growth forecast at 1.7 per cent in 2008 prompted a cut in forecasts for global GDP growth to 3.2 per cent from 3.6 per cent, mitigating factors should lessen the impact on metals prices, said Citigroup Global Markets Inc's mining and metals team.
In particular, the report noted that the shrinking US share of global demand for base metals to 12 per cent for copper and 16 per cent for aluminium now from 20 and 25 per cent in 2000, should minimise the effect on global demand for those metals.
contagion effect
More important than slowing the US growth would be the potential contagion effect on commodity markets from any spillover into other regions, especially China.
"Although we do not doubt there will be contagion effects from the US to China at a macro level, in metal markets there is no sign of it so far. This is particularly notable given that metals demand has been weak in the US since mid-2006," said Mr John Hill, metals and mining analyst at Citigroup.
Citi economists cut estimates for China's 2008 growth to still-robust levels of 10.5 per cent for GDP from 11.0 per cent and for industrial production of 16.8 from 17.8 per cent.
Increased infrastructure spending should hold metals up. In addition, Mr Hill said, a quest to diversify portfolios will likely keep fund money flowing into commodities, as inflows of long only money into the commodity indexes shows.
Supply constraints
Finally, supply constraints will persist, said Mr Hill.
Preliminary 2007 copper mine production figures show a million fewer tonnes than previously forecast, due to delays in commissioning new projects and operational problems at existing facilities resulting from four years of maximum output.
Weaker economic growth lead Citi to cut its 2008 copper estimates to an average $3.08 a lb from $3.50 a lb. But restocking by Chinese fabricators and supply disruptions should lift 2009 prices to $3.50 from a $3.00 a lb, the note showed.
Aluminium
For aluminium, the market is vulnerable to further US economic weakness, but pressure on Chinese smelter output is seen from rising power costs and a tighter alumina market.
Alumina production in China is likely to be curbed by bauxite shortages as Indonesia cuts its exports. Bauxite imports now account for nearly half of China's total and all of the growth in Chinese demand.
In 2007, 21.4 tonnes was imported, with more than 70 per cent coming from Indonesia.
"For the first time in this base metals cycle, global aluminium is beginning to exhibit production constraints similar to those that drove other base metal prices to record highs. But the US demand is weak," analyst Mr Hill said.
Citi's average price forecast for aluminium stood even at $1.20 per lb in 2008, but it sees 2009 prices increasing to $1.20 per lb from the $1.10 a lb forecast previously.
Citi increased its alumina forecast to $378 a lb from $260 a lb for 2008 and expects prices on average will climb to $390 in 2009, up from its previous forecast of $300 a lb.
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Source : Business Line |
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