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Ardent Listener
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 Posted - 03/09/2008 : 17:30:46
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Base metals still face upside risk
Posted: March 07, 2008, 8:55 AM by Jonathan Ratner
Mining
While base metals prices are up an average of 27% so far in 2008, supply losses have helped push copper to an all-time high. In fact, 0.4% (70,000 tonnes) of the world’s supply of copper has been lost in China and South Africa as a result of weather and power issues, Citigroup analyst Alan Heap estimates. The numbers are even higher for zinc at 1% (125,000 tonnes) and aluminum at 1.6% (650,000 tonnes) of supply.
He sees a chronic power problem emerging. “The energy crises in South Africa and China have brought to the surface deeper rooted problems which will take years to fully resolve. Continued production losses from ongoing power shortages in these economies and elsewhere can be expected,” Mr. Heap said in a note to clients.
Meanwhile, there are speculative drivers moving near-term prices. One of them is a short covering rally on the COMEX, he suggested, while an accelerated building of long positions is being driven by expectations for commodity prices to remain strong.
As the speculation subsides a little and supply shocks ease, metals prices may fall back, Mr. Heap said. Nonetheless, he sees plenty of upside risk due to recent developments.
Jonathan Ratner
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Base Metals still face upside risk.
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