Winners and Losers in the Base Metals Market

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The recent divergent performance of the LME metals raises the obvious question of whether the performance of the laggards - lead, nickel and zinc - will be duplicated elsewhere in the sector. The bottom line is Natixis Commodity Markets is looking for prices to continue trending lower; however we doubt whether the correction of the aluminium, copper or tin markets will approach the 50% plus level. One by one, the factors that have supported the bull market are slowly being removed.

The recent divergent performance of the LME metals raises the obvious question of whether the performance of the laggards - lead, nickel and zinc - will be duplicated elsewhere in the sector. The bottom line is Natixis Commodity Markets is looking for prices to continue trending lower; however we doubt whether the correction of the aluminium, copper or tin markets will approach the 50% plus level. One by one, the factors that have supported the bull market are slowly being removed.

Will investment interest be maintained?

The fact that some base metal prices have fallen by over 50% highlights that investment activity in the market can quickly turn from being bullish to bearish. Increased fears of stagflation are ultimately bearish for base metals and we are likely to see more fund selling than fund buying over the next eighteen months.

Supply growth starts to acceleratebr>Against a background of weak demand, the tight supply position has played an increasingly important role in supporting prices. Although we expect that output will continue to be affected by strike action and power-related problems, we believe that production growth will begin to accelerate. We note the double-digit gains in Chinese refined output so far this year. With the exception of the copper market, the tightness at the raw material stage appears to be easing...

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