Base metal prices have gone up by 10-15 per cent in the past one month. Risk taking was low, after the Dubai World crisis and it is now again going up with liquidity flowing towards these metals.

However, in the coming days, prices should come down if they are to be
supported by genuine demand, analysts believe. Copper is up 8.55 per
cent, tin by 17 per cent and aluminum by 12.7 per cent. Iron ore prices
in China have crossed $150 and trading at $155, an all-time high. Steel
and other metal scrap prices have also gone up significantly in the
past month.

“The strong metals rally came as a surprise to the market, as many
participants were looking for a slow start. Prices have moved hard on
weaker dollar, supply disruptions, fresh money buying and hopes of
stronger demand,“ said a metal analyst at Citi.

The world’s second largest copper mine, Chuquicamata, is on strike now.
Several zinc and lead operations in northern China were suspended due
to heavy snowstorm and fog, leading to an increase in prices.

Liquidity is the biggest factor pushing up metals. Another factor is
the dollar carry trade (investors borrowing at cheap rates in dollars
and buying higher-yielding assets, such as metals). Interest rates may
go up in the US, but it will take a while before the present volume of
carry trades unwinds.

Biren Vakil, Director, Paradigm Commodities, said: “We feel metal
prices are near their short-term top and correction (of 20-30 per cent)
is overdue.” He said there is not enough ground-level demand to support
the present rally. If demand does not pick up, the rally may turn out
to be a bubble.

Copper prices have crossed $7,500 a tonne, up 8.5 per cent since
December. A Citi analyst says, “We estimate China’s copper stock has
dropped to below 500,000 tonnes on lower October and November imports.”
China’s State Reserve Bureau is expected to enter the market to
increase its copper stock but only after prices come down.

Similarly, aluminium went up by 12.6 per cent, to $2,303 from December.
Aluminum scrap prices have also risen fast, through all regions. Steel
scrap prices have risen from $290 to $360 a tonne in just two months.

As for iron ore, it is trading above $150 a tonne in China. The price
was just $125 a couple of months ago. Ore mines are understood to have
entered annual contracts at $135-140 a tonne for 2010, a 50 per cent
jump from last year’s prices.

Jigar Shah, head of research at KimEng, a leading foreign institutional
investor, said: “Prices of non-ferrous metals have risen nearly 10 per
cent over the past month due to increasing demand from developed
economies, as well as production cuts globally by major producers.
Prices are still 30-40 per cent below their peaks two years earlier. We
believe high prices are sustainable in the long term due to strong
demand and recovering economies globally.”

T. Gnanasekar, Director, Commtrendz Risk Management Services said: “We
are bullish in base metals in the near term on the back of a lot of
liquidity chasing metals. But, for genuine demand to emerge, a big
price correction is required.”

Source: Business-Standard

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