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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 sectors 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 years 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.
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