Base metals are scorching. Aided by strong signs of economic recovery in the US, China and Europe?and importantly, also aided by production disruptions because of cold weather in China?prices of copper, zinc, lead, aluminium, nickel and tin have all climbed to new highs in the last few days. On Wednesday, the three-month Shanghai aluminum futures rose by their daily 5% limit from the previous session?s settlement to 18,045 yuan a tonne?a rise unheard of since December 2005, when the metal climbed uninterrupted for several days, before correcting marginally. Three-month copper futures on the London Metal Exchange (LME) hit $7,648 a tonne?that?s the highest since August 28, 2008. Similarly, aluminium prices on the LME also climbed to multi-month highs largely over fear that supplies could be disrupted from mines in China because of harsh weather there. On the London Exchange, tin hit a 15-month high of $17,665 a tonne, and lead reached a 20-month high of $2,633 a tonne.
In India, which usually takes directions from the global markets, metal prices are also on the boil. Copper futures locally, for the month of February, touched a contract high of Rs 351.9 per kg largely because of strong global cues. The rub-off effect of the strong rise in metal prices has pushed the Bombay Stock Exchange to a 22-month high. The BSE metal index rose by 233.7% in 2009, while the broader market gained 81% during the same period. Its nearest rival, the auto index, rose by 204.2% last year. Though the share of metal companies corrected a bit on Wednesday, largely due to profit taking, stocks of companies like Hindalco, SAIL and Tata Steel are all at multi-week highs. However, over-building inventories of major metals on the LME is proof that not all investors are buying into the metal story as yet. Copper inventories on the exchange rose to a nine-and-half-month high of 5,07,400 tonne on Wednesday, while inventories of zinc and other metals are also rising. This is because the extent of economic recovery?the fundamental driver of metals prices?remains uncertain. The latest numbers from the US show that though factory orders have improved, new home sales are still not up to the mark. Also, with extreme cold weather, particularly in China, likely to abate in the next few weeks, production disruptions will wither away. So, there may yet be a correction around the corner from the current highs. However, over the medium term, if economic recovery around the world takes firm root, metal prices won?t stay subdued for long.
