Commodities | Sep 21 2007
By Chris Shaw
The decision by the US Federal Reserve to cut official interest rates by 0.5% has been well received in commodity markets, the base metals sector posting the strongest gains given the relationship between metal prices and the global growth outlook.
Barclays Capital has added further support to the price outlook for the sector by pointing out market balances remain tight, a trend it expects will continue into 2008. As a result the group has lifted forecasts for a number of the base metals, the most significant increases for the rest of this year being lead and copper and for 2008 being copper and tin.
The fundamentals for copper appear very favourable in the group’s view as raw material markets are tight and inventory levels are low at the same time as there is likely to be a significant pick-up in buying from the Chinese.
The lead market has been characterised by lost production impacting on supply and so continuing the downtrend in LME stock levels, while similarly for tin the market appears likely to tighten further in coming months.
Nickel in contrast looks likely to remain weak as stainless steel de-stocking has contributed to a worsening in the fundamentals of the market, so the group suggests the current rally is likely to prove unsustainable even given the expectation of a slight improvement in conditions in the current quarter.
In terms of price changes the group has lifted its December quarter copper price forecast to US$8,000 per tonne from US$7,500 previously, while it sees further gains to US$8,200 per tonne in the March quarter next year and US$8,500 per tonne in the June quarter.
Its lead price forecast for the three months to the end of December has increased to US$3,300 per tonne from US$2,850 per tonne previously, though prices are expected to fall away next year to US$2,400 per tonne in the March quarter and US$2,200 per tonne in the June quarter.
Tin is expected to average US$15,500 per tonne in the current quarter before flattening out to an average of US$15,000 per tonne for the three months to the end of March and US$15,400 per tonne for the quarter to the end of June.
In terms of long-term price forecasts Barclays has lifted its estimates across the board, with aluminium increasing to US$2,900 per tonne from US$2,200 per tonne previously, copper to US$4,500 per tonne from US$3,500, lead to US$1,500 from US$800, nickel to US$19,000 from US$13,000 previously, tin to US$12,500 from US$10,000 and zinc to US$2,000 from US$1,400 previously.
With developments in the gold market positive the group has lifted its December quarter average price forecast to US$750 per ounce, noting there is scope for the metal to post fresh 28-year highs in the shorter-term. Into 2008 the price should settle, Barclays forecasting averages of US$730 per ounce and US$670 per ounce in the first two quarters of 2008.
Those feeling the pinch from the stronger oil price can take some solace in the fact the group doesn’t expect current levels to be sustainable, as it sees prices declining from an average of US$76.90 per barrel for West Texas Intermediate (WTI) this quarter to US$73 per barrel in the March quarter next year and US$74.80 in the June quarter.
