Base Metals Market Briefing - May 18, 2009

Base metal prices too far too fast?
Base metal prices in late April and early May performed as if we were still in a “supercycle” rather than as if we are in the middle of the sharpest decline in industrial output since World War 2. There are some aspects of this cycle (particularly on the supply-side) which makes us bullish about the medium term prospects for the sector out to 2012; however prices in the short term have got ahead of the fundamentals. We believe that there is still a “disconnect” between the physical market and the recent rally on the LME.

Although we note that green shoots are beginning to emerge in terms of some of the economic indicators, most of the evidence still points to only a slow recovery in activity. The IMF has just released its latest bi-annual forecasts. The recent rebound in prices is not quite in line with the IMF view: “Even with determined steps to return the financial sector to health and the continued use of macroeconomic policy levers to support aggregate demand, global activity is projected to contract by 1.3% in 2009. This represents the deepest post-World War 2 recession by far.” The organisation is now only projecting 1.9% expansion in 2010.

Is a recovery really imminent?
Nevertheless, the modest improvement a number of headline economic indicators published recently has resulted in some optimism being formed in global markets, with some participants even interpreting the data as early signs of recovery. The OECD Leading Indicators for a number of key markets inched up in March. Nevertheless, the overall OECD LEI continues to forecast a contraction in economic output through the second and third quarters of 2009. The LEI weakened to 92.2 in March from 92.4 in February.

> 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.