Base Metals set for bullish run in 2011

LONDON （Commodity Online）: 2011 is going to be the year of base metals, if the strong fundamentals of metals like copper, aluminium, zinc and lead are anything to go by.

Driven by huge demand from emerging markets like China and India, base metals complex led by copper have been the best performing commodities in the year 2010.

Investment into base metals is going to increase in 2011, as key base metals consuming and producing countries like China have enormous appetite for the metals.

China is one of the largest producer of base metals like copper, aluminum, lead and zinc and the country recently announced record production of both copper and lead in November, in response to high prices.

Here is what Ryan Cole, Contributing Editor, Taipan Daily has to say on base metals:

"Most investors focus on gold and other precious metals in these uncertain times -- but that may be a mistake.

The price of gold is largely driven by sentiment -- more specifically, by fear. As long as uncertainty and fear dominate the markets, gold should continue to hit new highs.

But if the world economy recovers, gold could well plummet -- as it did between 1980 and 1982. During that time, gold lost nearly two-thirds of its value.

Base metals like copper and lead, by contrast, don't really rely on sentiment. They benefit from the runs that all commodities, like precious metals, enjoy when currencies weaken -- but the majority of their value comes from demand.

Right now, demand is looking strong. China continues to act as if the financial crisis never occurred. The U.S. is coming back a little faster than expected -- especially in the industrial and manufacturing sectors.

Europe, the economic laggard of today, hasn't been one of the driving forces in base-metal demand for a few years. Weakness in Europe won't significantly damage demand.

In other words, base metals look likely to see further increases in the short term. If China reverses its decision in 2011 and hikes interest rates, the story may change -- but for now, base metals are a solid bet for further growth."

Morgan Stanley said in a report recently that base metals fundamentals are very strong. On copper, the investment bank said:“Although prices are currently trading close to their all-time high, strong demand trends, low inventory and ongoing supply constraints have reinforced our conviction that copper fundamentals remain the strongest in the base-metal complex.”

According to the Armored Wolf, a US based firm, aluminum prices are expected to rise in 2011 mainly on account of fall in the inventory levels and rising demand for metal from China, the world’s largest producer and consumer of the metal.

According to the International Copper Study Group 18.5 million tonnes of copper is likely to be produced in 2010, against the demand for 17.9 million tonnes. The 600,000-tonne surplus is expected to be halved in 2011, as demand is expected to outpace supply.

The November Metals Monthly published Monday by VM Group and ABN AMRO said recently that copper’s “supply-side difficulties” should enable it to outperform other base metals in 2011, with the possible exception of tin.

The report said the copper/aluminum ratio will extend up to 3.7 for the first time.

Analysts have revised down their 2011 lead surplus due despite sizeable Chinese capacity additions, due to the buoyant Chinese car market, while analysts see OECD demand strengthening from 2010. Zinc market surplus has also fallen modestly on expected improvement in demand.