Outlook for base metals remains weak in near-term: StanChart

The price outlook for base metals is expected to remain weak in the near-term due to poor demand conditions, stated a Standard Chartered Bank report. Base metal prices have remained under downward pressure in the last few weeks, with inventories building sharply on the London Metal Exchange (LME) and demand conditions continue to worsen in most parts of the global economy.

"For the base metals complex, we maintain our view that prices are generally close to a floor (determined by operating cost levels), but we are looking for more weakness in the next few months due to poor demand conditions," said a latest monthly analysis of commodity trends released by Standard Chartered Bank.

Copper prices could head below $3,000 per tonne in the months ahead as LME inventories rise and producers struggle to realign output levels with demand. The prospects for aluminium over the next few months are pretty bleak. Demand has dropped further in the past few months and producers are reluctant to cut back. Price may average $1,420 per tonne for the first quarter in 2009, the report said.

"Our view on nickel has not changed in the past few weeks. We continue to believe that prices will trend lower in the weeks ahead. Problems for the industry include the large amount of inventory accumulated on the LME," the report added.

The worst is not over for the zinc industry, as prices could head back towards the $1,000-a-tonne level unless demand improves. Tin will ultimately be one of the better-performing base metals this year. For the time being, though the bank expects weak demand to be a key driver keeping prices subdued for the next few months at least.

For base metals, the price trend in the second half of 2009 is expected to be broadly upwards. Copper, lead and tin should rally significantly, while aluminium and nickel prices will likely be subdued given high stock levels.