Base metals: are they losing their shine?

published 19 October 2007

The boom in base metals will be bolstered by a combination of tight supply, dollar weakness and Chinese demand in 2008, says Veronica Brown on Reuters. But for the first time since the boom started in 2001, the longer-term outlook for base metals may be looking a little murky. The prospect of an extended US recession is spoiling the party. US demand for zinc is already falling sharply, with analysts expecting a surplus of zinc to develop in 2008. The tide is also turning for nickel, according to ABN Ambro, with a modest oversupply persisting over the next few years, despite relentless Asian demand for its use in stainless steel production. "The days when the metal prices rose in harmony are now over," says Javier Blas in the FT.

But with China sucking up resources for its Olympics developments, some metals are likely to be immune to any US weakness in the year ahead. Copper in particular could face a squeeze, says Barclays, heading for $8,500 a tonne by the second quarter of next year. The prospect of a big pick up in Chinese buying threatens to wipe out an inventory weakened by stoppages in Mexico and Peru. Longer term, aluminium will be king of base metals, Barclay's Gayle Berry tells Forbes there's big potential for the metal in Chinese car production, and Western rail infrastructure spending may see it catch up on its more glamorous peers.