Market Spotlight: Industrial metals

Market Spotlight: Industrial metals

	Published : Wed, 31 Jan 2007 22:02 By : Agencies Print this Story

NEW YORK (AFX) - Industrial metals nickel and copper have continued their divergent paths in 2007, with January's sharp rise in nickel prices overshadowing investors' flagging sentiment toward copper.

Nickel prices climbed to an 11-year high last week. The metal, which is used to make stainless steel, has been in high demand from fast-growing economies such as China. But for essentially the same reason -- China -- copper prices have plummeted.

Last year, after copper prices surged in May to an all-time high above $4 a pound on the New York Mercantile Exchange, Chinese demand began to dry up, and copper prices began their fall. To avoid the inflated price tags, China began to mine copper itself, dipped into state reserves and recycled scrap metal, said BNP Paribas metals analyst David Thurtell.

The Chinese 'are intensely focused on price,' he said. 'They stopped buying metal on the world market.'

Although that trend has begun to show signs of change, and the market is seeing renewed interest from China, the return of Chinese demand hasn't yet plugged the drop in prices. That is partially because copper producers, wishing to lock in prices before they fall further, have been selling, Thurtell said.

Chinese copper consumption, down about 2 percent in 2006, jumped 25 percent in December compared with the prior year, according to a report by Merrill Lynch analyst Daniel Hynes.

Barclays Capital analyst Kevin Norrish recently lowered his copper price forecast for 2007 and marked up his nickel price estimate. Cash copper prices have fallen 12 percent since the start of the year, reflecting a steep rise in inventories on the London Metal Exchange. Meanwhile, nickel prices are up 14 percent from the prior month, based on the metal's settlement price last week.

However, Norrish has said in client reports he expects copper prices to recover. He also notes that swelling copper inventories are still at historically low levels.

'We continue to project a small market deficit in 2007, with inventory levels staying at historically low levels, raw materials markets remaining tight and Chinese restocking of copper likely to play an important role in strengthening the demand picture going forward,' he wrote in a client report.

Phelps Dodge Corp., a major copper producer based in Phoenix, has said it expects copper consumption to grow by 1 percent in the U.S. and Europe and by 7 percent in China in 2007.

On Wednesday, labor issues helped strengthen the metals market. Workers at BHP Billiton Ltd.'s Cerro Colorado mine in Chile voted to strike, bolstering copper prices. A contract deadline Wednesday loomed in negotiations between Xstrata PLC and workers at its Sudbury nickel mine in Canada.