Base Metal Prices to Rise on New Supply-Demand Fundamentals


The VM Group said the delay or suspension of mineral exploration projects would lead to tightness of supply and be a defining factor in the upswing of metal prices from 2010.

The commodity super-cycle theory was thrown off course during the last two months of economic turmoil, leaving the markets to assess supply-demand fundamentals anew, the VM Group said in its Fortis Metals Monthly.

On the demand side, matters appear gloomy as industrial growth seems to be flat or in decline. As a result, the issue is now to balance supply with the new world order of demand, said the Group.

The commodity supply side will be under pressure to shed production, until the full impact of the financial crisis and ensuing global recession on industrial demand is known. If operators delayed making significant cuts to their output and expenditure, significant stock builds that would delay price recovery would occur.

However, numerous mineral projects are now being delayed and mine production cuts imposed across base metals operations. The VM Group estimated that about 630,000t of copper supply per year was currently under threat of outright production cuts, project delays or increasingly complex mining related issues...

"In addition, the delay or suspension of mineral exploration projects, crucial to support industrial demand in the long-term, will lead to tightness ahead." The report said this would be a defining factor in the upswing of metals prices from 2010, as the VM Group felt confident that China and other leading developing economies would quickly recover and grow to pre-recession levels.

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