TORONTO -- Synchronized global growth is underpinning rampant demand for nickel, copper, zinc and aluminium, and experts believe the metals’ best prices are still to come. Scotiabank’s Patricia Mohr told PDAC Convention delegates that her group has seen its Metal and Mineral Index surpass the 1999 cycle high on the back of hedge fund investments related to China’s expansion, G7 growth that accelerated after the war with Iraq ended, the decline in the trade weighted dollar and lack of smelter capacity and investment.
“This is a new era for metals,” she said, noting group forecasts for average metal prices in 2004 of 50 cents per pound for zinc; Aluminium - 78 cents; Nickel - $6.50-$7; and copper - $1.27.
Zinc has been a late bloomer in this broad rally, but once again China is the driving force according to Noranda’s Bob Sippel.
Noranda is expecting a zinc deficit of some 600,000 tonnes in 2010 despite several massive new mines coming on stream. The deficit is expected to stem from a combination of mine closures and growing industrial demand, especially in developing countries.
Sippel expects those countries to mimic western zinc consumption per capita as they modernise with staggering overall demand implications.
It’s all eyes on copper though as it scorches to levels last seen nearly a decade ago.
Cannacord’s Greg Barnes presented one of the best, freshest cases for copper for investors who have lately been bleached with a narrow perspective of the metal.
“We think there’s still room for copper prices to move higher, possibly exceeding the late 1980s price peak, particularly over the next six months,” said Barnes.
The catalysts have been output disruptions at several mines, whilst copper treatment charges have fallen into the basement because of competition between smelters/refiners. According to Barnes, spot treatment terms reached as low as $10 per tonne and 1 cent refining in China and India late last year.
“The lowest treatment charge has to go to Inmet. . . they had been able to achieve negative treatment charges on a small quantity of concentrate sold out of the OK Tedi mine,” Barnes said.
He warns that supply will increase in the second half of the year from several sources, but expects a tense summer because of restocking demand.
London Metal Exchange copper inventories have been drawn down by 600,000 tonnes in recent weeks, whilst Comex inventories are down some 160,000 tonnes. Total copper stocks are at 1.4 million tonnes or just over 6 weeks of consumption.
However, Europe’s CRU expects the depletion to hit the critical level of 4 weeks. Even then, Asian copper inventories have already been exhausted and shipping costs have risen exponentially as consumers scramble for metal from elsewhere.
“LME inventories have been dropping at the rate of 3,500 tonnes per day for some time. If this is maintained, LME inventories could be completely gone by June and who knows what will happen to prices if that does in fact happen,” Barnes said.
That depletion is being anticipated by premiums being paid over LME quoted prices by Asian buyers.
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