Base Metals Market Briefing - September 4, 2009

Base metal prices shun calls for summer correction
In early August GFMS had noted that the strength of base metal prices defied the sector’s generally lacklustre fundamentals and seemed to relate more to expectations for a noteworthy improvement later in the year and, importantly, in 2010. At the time, base metals seemed somewhat overbought and a correction before the end of the summer season, triggered perhaps by the seasonal lull investment markets often experienced at the peak of the season, had seemed likely. However, prices have continued to trend higher. For instance, at end-month, GFMS’ Base Metals index was up 8% on the end-July level, at 257.4, and 80% higher than the year-to-date low. Once again, investment-type purchases, be that by speculators or consumers trying to secure material in expectation of prices increasing as conditions tighten, rather than improved end-use demand were the principal drivers of the boost prices enjoyed.

Although the potential remains for a correction, it is our view that the extent of any such decline would be limited, as investors or users that missed the recent leg of the rally are likely to perceive the lower prices as an opportunity to buy metal (again, in anticipation of a widespread recovery in consumption later in the year), thus providing support for prices. On the investment front in particular, this could also be helped by the relative lack of alternative markets for liquidated base metals’ positions to be shifted to in the current environment (equities are at least as overbought as commodities and the exceptionally low interest rate environment makes the fixed income market less attractive).

On the basis of all the above, GFMS’ projections see base metal prices managing to maintain the bulk of their recent gains for the very near term, with only limited retracements suffered. Looking further ahead, we continue to expect a strong final quarter boosting this year’s averages.

> This article gives the introduction to our latest detailed analysis on the market. To access a full version of a recent detailed monthly report on the base metals markets plus a recent briefing update, click on the links below.

> Base Metals Market Briefing - December 9, 2008.

> Base Metals Market Briefing Update - December 16, 2008.

Disclaimer: Whilst every effort has been made to ensure the accuracy of the information used in this document, GFMS Metals Consulting cannot guarantee such accuracy and GFMS Metals Consulting does not accept responsibility for any losses or damages arising directly, or indirectly, from the use of this information.