High flying metals face turbulence: BMO Financial

Vancouver – High flying metal prices are in for some turbulence this year, in spite of healthy global demand and relatively low stockpiles, said BMO Financial Group in its latest commodities forecast.

Following an average price gain of 50% in 2006, BMO said its Metals and Minerals Index is expected to stay flat at a high level this year, although the monthly pattern will show an easing trend.

BMO’s forecast predicts that average prices of nickel and zinc in 2007 are likely to rise over last year, while copper and aluminum should ease.

For 2006 as a whole, copper recorded a gain of 82% and averaged US$3.04 a pound. But BMO expects prices to slip to an average of US$2.60 in 2007. It said a growing surplus should see prices ease further to US$2.30 in 2008.

Copper has tumbled by more than 30% since touching a record high in May and prices are down about 10% so far this year.

“The sell-off we have seen over the past three weeks or so has been overdone,” said Comerzbank analyst Peter Dixon, in an interview with Reuters News service.

“But it is quite evident that (supplies) generally are less tight then they were a year ago. Certainly the turnaround in copper stocks has been particularly strong(it’s) hardly surprising that we have seen some softness.”

On an average annual basis nickel prices jumped almost 65% to US$10.99 a pound in 2006. Though rising supplies from new mines and mine expansions should nudge prices down from current levels, continued demand strength and meager stockpiles are expected are seen keeping them well above historical levels this year and 2008, said BMO, adding that nickel prices are forecast to average US$11.50 a pound in 2007 and US$8.50 in 2008.

Over the past year, average aluminum prices appreciated 35% to an average of US$1.16 a pound.

Though weaker alumina prices should continue to promote some easing, solid industrial production and limited supply response should keep prices well above historical norms, said BMO. It said prices are forecast to decline gradually over the next two years to average US$1.08 in 2007 and US$1 in 2008.