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Base Metals Set to Shine after Price Falls & Oversupply - AfDB

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Tunis, 30 July 2010 – Prices for metals such as aluminium, copper, lead, nickel, tin and nickel are set to rise after a period of price volatility and oversupply as the global economy begins to recover, according to the African Development Bank (AfDB).

These base metals have been going through a period of price uncertainty after benefiting from a record five-year commodity price boom that ended with the global financial crisis in early 2008, a new Commodity Market Brief from the AfDB Chief Economist’s office points out.

The brief points out that this boom, like earlier commodity booms, was linked to strong global growth, but adds that it was exceptional in its duration, and in the range of commodities affected.

AfDB Chief Economist, Mthuli Ncube, said: “By mid-2008, metals and minerals prices were about 300% higher in dollar terms than in January 2003.”

But a reversal came after the global financial crisis and oversupply took their toll.  In 2008, the price of nickel slumped by 41%, and lead fell by over 18%. The process continued in 2009 as base metal and mineral prices crashed from record previous highs.

But so far this year there has been a dramatic recovery.  For instance, the average price rises to mid-June ranged from 45% for nickel to almost 23% for lead.  However, the brief points out that so far these increases do not represent a reliable trend – they mask a lot of volatility.  For instance, the price of lead, copper and aluminium fell in the second quarter compared to the first quarter of 2010, and there were also rises and falls on a monthly basis.

The AfDB attributes this price irregularity to various factors, including changing sentiment over global economic recovery, especially concerning major base metal consumer countries such as the US, China, Brazil and India.  Other factors include the stronger dollar (base metal prices tend to fall when the dollar rises); declines in US housing stats; the European debt crisis, and rising metal stockpiles.  Lead stocks, for instance, were 31% up in June compared to the start of 2010, and zinc inventories are near the highest level since April 2007.

However, the AfDB forecasts sustained price rises for base metals as the year progresses and stockpiles fall, and it expects those increases to continue through 2011.

“As Europe and indeed the global economy recover, we shall begin to witness a sustained bullish base metal market”.  Also, emerging economies will add to the demand as they build their infrastructure.  
Mr Ncube added that “We also expect price rises to continue in 2011 due to a lack of investment in new mines”.

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