Industrial metals: Copper market still heavily undersupplied

Metal prices start the new trading week cautiously, but remain at very high levels. Copper costs a good USD 9,800 per ton, around USD 100 less than on Friday. Nickel falls by 2.5% and slips again below 24,000 USD per ton. On Friday, the nickel price had closed above this mark for the first time since August 2011. Aluminum is still holding above USD 3,000 per ton. In our view, profit-taking is behind the weaker start to the week, after many metal prices had risen strongly since the beginning of the year. On the other hand, some market participants seem to be positioning themselves more defensively ahead of the Fed meeting in the expectation that the US central bank will give further signals that it will tighten its monetary policy soon.

Last week, the International Copper Study Group (ICSG) reported a supply deficit for the global copper market of almost 300 thousand tons in the first ten months of last year. This is significantly higher than the ICSG assumed for the full year at its fall meeting in October. Although supply is now expanding more strongly than demand is rising, we believe that the ICSG was probably too optimistic with its estimate in the fall; there is probably a need for revision again. Nevertheless, the reported deficit was around 100 thousand tons lower than in the corresponding period of the previous year, which indicates a certain easing of the market. According to ICSG data, higher mine output has led to increased refined metal production, while demand growth has lagged behind supply expansion. Today, the International Lead and Zinc Study Group (ILZSG) is releasing data on the state of the zinc and lead markets. Over the course of the past year, both markets have tightened noticeably. The ILZSG is expected to confirm this trend today.

Source: Commerzbank Research, Photo: Fotolia