Fall in base metal prices continues

MUMBAI: Base metals continued their immense decline on Thursday with all domestic futures on MCX falling by nearly 3 per cent. On London Metal Exchange, price havefallen by 8-14 per cent in last two sessions alone. While all the metals are trading well below their cost of production, bleak global economic outlook continue to trigger more selling. Prices have breached all strong and expectations of some rebound have been wiped off. “While current price range seem very attractive for a buy, considering that all metals are nearly 50-80 percent down from their peaks, some positive development on the fundamental side will be crucial for the sentiment to show some resilience,” said Navneet Damani, research analyst, Anand Rathi Commodities. Declines in base metals are so massive that all of them are currently trading 10-30 per cent below their cost of productions. Nickel leads the decline losing more than 80 percent from its peak and currently trading near $9500 per tonne, more than 30 percent below its marginal cost of production of $15000 per tonne. The enormous plunge in prices is expected to add pressure on small size and higher cost production and smelting operations. A significant reaction from the supply side in this backdrop could lend some support to the fall while global economic growth is expected to show a significant slow down. While the economic conditions in US, the world's largest economy, leads the overall negative outlook, the contraction concerns are now spreading across the globe. According to the Financial Times' economic forecasts for all European countries, Germany, France, Spain or Italy are not expected to grow by more than 0.5 percent in 2009. Comments from BoE governor King as well as Prime Minister Gordon Brown, suggested that the UK is in a recession. Earlier on Monday, economic releases from China reflected a softening economy, with the third quarter GDP contracting significantly to 9 per cent from previous quarter growth of 10.1 per cent. September factory production also fell to 11.4 percent from 12.8 per cent in August. ---the economic times