Base metals: avenues to diversify

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: production and marketing of ferrous and non-ferrous metals in India are doing reasonably well except for some fluctuations in all metals and with specific emphasis on aluminum and alumina producers. Balance sheets are healthy and expansion and M&A is the name of the game with worldwide companies as targets. One clear offshoot of high prices has been the development of science and technology on non-ferrous metal industry for better, faster and more efficient extraction processes. Due to good profits, there has also been increased investment in non-ferrous metal mines. However, there has been some decline in investment in non-ferrous metal smelters which is expected to correct this year. In addition, there has also been a renewed focus on energy saving due to its increasing cost. Indian industry is now consolidating and looking to absorb foreign capital and bring in international management expertise for increased efficiency and larger scale of operations. Base metal prices have seen a marked comeback after the precipitous fall in the summer of 2006. Copper has been the star performer though, of late, it has seen a fall in prices along with other base metals. Lead and aluminum prices too scaled new highs this year.

After centuries of large-scale exploitation, the global non-ferrous metal resources are becoming increasingly valuable, so the prices have kept a long-term rising momentum. Though the speed of growth supply/demand and price of non-ferrous metal industry may decline from its peak, it is unlikely to be large. More than likely, the forthcoming five years will remain as the boom period of non-ferrous metals industry, which will lead to continuous increase in production capacity, and the next couple of years are likely to see a new peak period in the expansion of smelting industry which were neglected with capital flowing towards mines. All this makes for an excellent investment opportunity which international funds have been quick to latch on to.

Exchange volumes in India have largely done well in base metals and there is considerable trading volumes and hedging interest with prices having clear international correlation.

Trading and investment