You need nerves of steel to invest in base metals this year . The immediate future for copper, nickel and aluminium does not seem rosy. However, in the long term, these metals, barring nickel, could give good returns. A World Bank report, Global Economic Prospects, released in January says the average price of these metals is expected to fall six per cent this year. The reasons: lower demand than before and rise in output as new projects go on stream. In 2011 too, metal investors failed to get good returns due to a fall in demand as the European Union (EU) and the United States went into recession and China tightened its monetary policy. The London Metal Exchange (LME) index fell 21 per cent, and stood at 3,306 on December 30, 2011. The index tracks six metal contracts - aluminium, copper, lead, nickel, tin and zinc.
How will the domestic scene pan out? Renisha Chainani, Commodity Manager, Capital Markets (individual clients), Edelweiss Financial Services, says: "The debt crisis in Europe and the uncertainty in the US are dampening prices. Any positive development in the EU and the US will be a plus." Below, we compare and contrast the World Bank's view and that of local experts on the likely movements of copper, aluminium and nickel.
In 2011, copper lost 21 per cent on the LME. It fell $2,011 per tonne during the year and was at $7,557 per tonne on December 30, 2011. It had touched a high of $10,160 per tonne on February 14, 2011, but fell thereafter due to worries over recession in the West. It dropped to a low of $6,735 per tonne on October 2011. The fall in India was 9.75 per cent during 2011.
World Bank view: In 2011, the global price fell due to high inventory and low demand. The red metal is expected to rebound as global growth recovers and China stocks up. Over the medium term, the price is expected to fall as demand slows and new capacity comes on stream, creating a small surplus. On February 29 this year, the metal was trading at $8,638 per tonne on the LME.
Domestic view: Indian experts agree with the Bank's outlook for the next few months. Naveen Mathur, Associate Director, Commodities and Currencies, Angel Broking, says: "In the next three to four months, any upside will be limited. In the long term, we expect prices to rise due to supply problems, falling ore grades and demand from China."SPECIAL:
Experts say prices are likely to go up as China and India loosen monetary policies, increasing the supply of money. That apart, concerns over supply, improvement in the US economy and the direction the debt crisis takes in Euro zone countries will decide prices. Harish Galipelli, Head, Commodities, JRG Securities, says: "The Purchasing Managers' Index (PMI) has expanded in the last few months, which may push up prices. A lot depends on the demand from industry and the housing sector. We expect LME prices for copper at $9,000 to 9,200 per tonne by the end of the year. Prices may stay between Rs 490 and Rs 510 per kg on the MCX." The PMI indicates the health of the manufacturing sector.
Globally, aluminium prices fell 18 per cent in 2011. The metal traded at $2,017 per tonne on December 30, 2011, on the LME. On the MCX, it dipped 4.75 per cent to Rs 104 per kg during the year.
World Bank view: Prices of all metals, except aluminium, will fall in the medium term. Aluminium will be supported by higher cost of power and other inputs. Alongside, demand is expected to be robust mainly because of the metal's lightness, durability and multiple uses in the transport, construction, packaging and electrical industries. Demand from China has been the main driver of aluminium prices. At present, China's 21 per cent aluminium smelting capacity is outdated and unproductive. The country is fast changing to effi cient energy use by shutting down old plants and building new ones. This may limit any downward pressure on prices.
Domestic view: In contrast, domestic experts are bearish for the short term. However, they say, the metal could move above the December 2011 level in the long run. Sumit Mukherjee, Fundamental Analyst, Karvy Comtrade, says, "We expect pressure in the short term, but prices may recover in the longer run as demand from China, Japan and Euro zone countries is likely to improve by the middle of the year." Aluminium is gaining ground as a substitute for copper in the power cable and wiring industry due to its lower price, which is creating additional demand. "Consumption is expected to be 44.5 million tonnes in 2012, up six per cent from 2011. We expect the metal to test the $2,600 level by the end of the year with an average price of $2,400 on LME. The price may touch Rs 125 per kg on MCX," says Galipelli of JRG Securities.
Aluminum has been trading in the range of Rs 102 to 113 per kg on MCX since August 2011. "Prices have reached their long-awaited resistance level of Rs 113 per kg. Any sustainable close above this will confi rm that the short-term bottom has been formed. The bullish momentum sets the near-term target at Rs 120 per kg and then Rs 128 per kg. However, any breakthrough with considerable volumes will dampen the bullish view," says Mukherjee.NICKEL
Nickel, like aluminium and copper, did not do well in 2011. It fell 25 per cent on the LME and 13 per cent on domestic exchanges. On the LME, it dropped to $18,620 per tonne on December 30, 2011, against $25,000 per tonne on January 4, 2011. On prospects for 2012, Kunal Shah, Head of Research, Nirmal Bang Commodities, says the price on the LME may not rise above $23,400 to 23,600 per tonne, but even if it falls, it will not go below $18,000.
On 28 February this year, it was trading at $19,775 per tonne on the LME. On the MCX, it shed Rs 144 per kg in 2011 and closed at Rs 973 per kg on December 30, 2011, against Rs 1,118 per kg on January 1. Nickel came under selling pressure in 2011 due to worsening economic conditions in Europe and China and the rise of nickel pig iron as a substitute. There was also an expectation of production surplus.
World Bank view: Nickel came under pressure in 2011 despite falling inventory and rising demand because of the expected increase in capacity. The price is expected to fall in 2012 due to capacity additions. Domestic view: Domestic experts back the World Bank view. Kunal Shah of Nirmal Bang says, "Rising production and slack demand from Europe should cap the upside in nickel." Chainani of Edelweiss agrees. "We expect nickel to remain under selling pressure. The global market is expected to have a surplus in 2012. The debt of European countries, the slow growth in China and uncertainty in the US will continue to cause tremors in the market.
The price on MCX is expected to be in the range of Rs 700 to Rs 1,300 per kg." On March 1, the metal was trading at Rs 970 per kg.
Consumption in 2012 is expected to be 44.5 million tonnes, up 6 per cent from 2011. The price may touch Rs 125 per kg on the MCX: HARISH GALIPELLI, Head, Commodities, JRG Securities
In the long run, we expect copper prices to rise due to supply problems, falling ore grades and demand from China: Naveen Mathur, Associate Director, Commodities, Angel BrokingNICKEL
The global market is expected to have a surplus in 2012. The metal is likely to trade in the range of Rs 700-1,300 per kg on the MCX: Renisha Chainani, Commodity Manager, Edelweiss Financial Services
Courtesy: Money Today