Base metals disappoint

THE fundamentals for base metals have been negative this year with the exception of nickel, which has been the only metal to shine among its contemporaries.

According to the report, Base Metals Outlook, by stockbroker Macquarie Research Equities, the first half of 2000 has been one of extreme disappointment.

“Nickel was the only metal to show significant price appreciation,” the report said.

“If we compare May 2000 averages in US dollar terms, nickel was the only metal where the price average was more than 6 per cent above January, 1998 average.

“Sentiment shifted early in 2000 against the base metals with the increasingly dominant view being that metal prices must fall because global industrial production growth had peaked and would fall sharply in late-2000/2001.”

The worries centred mainly around a hard landing for the US economy and its flow-on effects to the rest of the world.

Other factors also damaged sentiment including hedge fund liquidations, better-than-expected supply growth, the absence of industry restocking and a strong US dollar,

particularly against the euro.

The Macquarie report said it seemed likely that world IP growth was at or near its peak and that growth rates would soon slow, with numerous lead indicators pointing to a peak in growth around May-June.

Historically this has not been a positive environment for higher metal prices because growth has tended to slow quite savagely after a peak, leading to sharply lower metals demand growth.

In most cases, metals demand has plunged after the peak in growth due to heavy destocking by consumers, who typically have over-stocked during the up-cycle.

“We think this cycle is different in important respects from previous cycles,” the report said.

“We expect a soft landing for the global economy (unlike recent growth cycles) due to judicious application of monetary policy against a background of moderate global inflation.”

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