Base metal prices will remain high next year but expanding mining production will limit gains, according to analysts gathered in London. This year has witnessed record price levels for copper, aluminum, zinc -- and most recently nickel and lead -- as global production across the base metals complex has failed to satisfy enormous demand from China.
Demand from the U.S. and Europe has also proved buoyant, but China was key to the demand picture for base metals.
Global metals demand is predicted to climb by 4.0% in 2007, compared with between 5% and 5.5% this year. Stockpiles meanwhile have fallen to critically low levels in 2006, as frequent strikes by workers at vital mines in Canada, Chile and New Caledonia have combined to create massive production deficits.
However, the fundamentals of supply and demand could soon change, analysts at LME Week warned. Mining companies are this year ploughing more than $7 billion into exploration, according to estimates from Societe Generale. That compared with a combined annual exploration budget of less than $2 billion in 2002.
New mines coming onstream over the course of the next year are expected to meet increased global demand for copper, aluminum and zinc, and could even result in production surpluses for lead and tin. However, nickel will remain mired in a production deficit. That is because of the current boom in demand for stainless steel, where the manufacturing process absorbs a hefty 65% of nickel supplies.
China is regarded as vital to demand growth because it consumes one fifth of total global supplies of copper and zinc. It also accounts for almost 30% of steel demand and 40% of iron ore, according to data from UBS.
Deutsche Bank analysts predict that China will import a staggering 20 million tons of copper in 2020, compared with just 3 million this year. And by 2010, Chinese consumption of aluminum will be so high that it will be no longer be self-sufficient and the country will need to import the metal for the first time since 2001.