Overview: 2006 sees LME metals gain

Tight supply is continuing to attract investors to the market. Some industrial metals more than doubled in 2006. The MSCI All-Country World Index was up around 19%.

On the LME, three-months copper futures ended 2006 at $6,330/mt, up 44% from its closing price on the last trading day of 2005. Nickel, which ended the year up 140%. Aluminium rose 23%.

The major force behind the price rise was demand, especially from China. To add to this, supply is limited by the slow pace of building new mines and smelters. On top of this, strikes and accidents at mines all over the globe gave metals extra support.

"2006 may mark the shift from demand-driven markets to supply-driven markets," Societe Generale Corporate and Investment Banking said earlier this month.

"As 2006 has already showed a significant slowdown in most underlying demand growth rates, some investors...have already revised downward their expectations of demand."

Demand for copper has fallen over the year. Stocks were 182,800 tonnes on the last trading day of 2006, more than double their level at the end of December last year. Cash copper peaked at $8,800/t in May, way ahead of the highest forecast at the start of the year.

Tin charged to a 17-year high of $11,850 in late December, spurred by expectations of lower shipments from Indonesia next year as the government plans to crack down on unregulated mining.

"Tin which has been in a market deficit according to our calculations of almost 6,000 tonnes is likely to remain in deficit next year, and indeed the deficit could grow further if these measures are put in place," Standard Bank said.

Three-month tin ended the year up 77 percent at $11,510 while stocks were down 22.5 percent.

Zinc, which many market observers picked as a good bet for 2006, ended the year at $4,230, up 122 percent. Its cash price peaked at $4,603 per tonne (208 cents per lb) in November, more than double analysts' expectations at the start of the year.

Nickel stocks plunged from more than 35,000 tonnes at the end of last year to 6,648 at the end of 2006, and its three-months futures contract ended at $33,325 per tonne, up 140 percent.

Three-months lead ended the year up 59 percent at $1,670 per tonne, after hitting a contract high of $1,785 in December, supported by falling stocks and strong demand from battery makers.

Aluminium ended the year at $2,805 per tonne, up 23 percent. Supply of the light metal is not as tightly constrained as are other industrial metals, analysts said.