LONDON (Commodity Online): In the current environment, Barclays believes aluminium can offer a good defensive position given that further price downside is likely limited by the proximity of prices to production costs.
“We estimate that at current prices of $2,250/t, as much as 25% of global production is losing money.” the report said.
Barclays is neutral on nickel fundamentals on the view that recent price weakness is overdone but that recovering production will ease market tightness progressively into 2012, while they view zinc as the weakest metal given that the market is expected to remain oversupplied for the next 12 months.
Base metals have suffered considerably over the past month, as the complex has moved quickly to price in downgrades to global growth. Given the ongoing uncertainties attached the euro area debt crisis, concerns remain of further growth downgrades, which continues to place pressure as well as volatility on price movements.
“However, we would temper the current degree of pessimism given that Chinese metal demand remains in healthy and supply-pipeline inventories are very thin globally, which provided the macro picture starts to brighten, should mean a price recovery is likely.” Barclays said.
While copper continues to possess the strongest fundamentals – mine supply disruptions combined with solid improvements in Chinese import demand are clearly supporting a market deficit – the distortions of flat price performance by whims in macro sentiment point towards time spreads as a lower risk approach to play the fundamentals.
Finally, lead prices should gain some support if there is a solid recovery Chinese battery sector activity in Q4, which should in turn nudge the overall market into deficit for that time period, the report concluded.
