Editor's Note: Prices for many precious and base metals hit record highs in 2010, as economic uncertainty rattled around the globe. What does 2011 hold for gold, silver, platinum, palladium, copper and other metals? Kitco News reporters have prepared a series of stories which examine what is in store for 2011, not only for metals but for currencies, stocks and the overall economy: 2011 Precious Metals Outlook

(Kitco News) - Nickel’s strong price-performance in 2010 likely won’t be repeated in 2011 as high supply levels and cheaper alternatives will pressure prices.

Other base metals might have trouble sustaining recent price gains into 2011, too, even with an expected pick up in industrial demand as the global economy expands.

Nickel prices rose in 2010 because of strong demand but as the calendar flips to 2011, profit-taking is likely to eat into those gains as traders across the globe come back from the holidays. Nickel could also see selling pressure as the commodity indexes readjust the weightings of the various components of the index. In some indexes, like the Dow Jones-UBS index, nickel’s weighting is slated to fall versus last year.

As of late December, nickel prices were trading around $24,110 a metric ton on the London Metal Exchange.

Ed Meir, senior commodity analyst at MF Global said excess supply of nickel could last into next year and that will weigh on prices.  “Our trading outlook for nickel would be somewhere around $21,000 (per metric ton) on the downside and a spike would bring it $26,500 (metric tons), in the first quarter of 2011,” Meir said.

The current high nickel price has meant the market is seeing greater supplies of pig iron, which will add pressure, he said.

“We think the problem with nickel is there’s a lot of pig iron penetrating the market, particularly by the Chinese,” Meir said. “Whenever you have nickel prices at this level, pig iron becomes competitive in certain applications and that’s been keeping many of the Chinese producers from using nickel and turning to pig iron instead.”

However, the lull in nickel prices is not expected to last throughout the entirety of 2011. Some analysts believe that demand, namely in the stainless steel sector, could pick up midway through the year which could send prices higher before they drop again.

“Demand from the stainless steel sector is likely to become stronger in the second and third quarter and that could lift prices higher,” said Mu Li, commodities analyst at CPM Group. “We could see some downward price revisions in the fourth quarter as a result of increased supply from new projects coming into production.”

However, Meir doesn’t think the stainless steel sector will produce much growth in demand for nickel and does not expect to see the prices go over $30,000 per metric ton in 2011.

Other Base Metals Outlooks Mixed

After prices skyrocketed to record highs in 2010, tin prices are expected to continue the trend in 2011.

Supply is an issue as Indonesia is currently having trouble with new regulations implemented in underground mining practices aimed at protecting forests.

The new regulations are causing confusion in the mining and forest industries as it’s not clear where mining is allowed. Indonesia boasts one of the largest mineral reserves in the world, with mineable tin reserves listed at 338,911 metric tons.

“There’s really weak supply as far as Indonesia and the Congo into next year, we do expect the market to register a significant deficit,” said Justin Honrath, commodity analyst at CPM Group. “I would not be surprised to see tin prices test the $30,000 level.”

Tin prices on the London Metal Exchange were trading around $26,705 a metric ton in late December.

Lead prices are currently around $2,558 a metric ton, but some analysts are optimistic that values could rise into 2011.

“During the next year I wouldn’t be surprised to see prices head as high as $3,000 following some initial weakness in the beginning of the year,” Honrath said.

The auto industry is expected to drive lead prices in 2011 as China, despite reducing various subsidies for some car purchases, will continue to support prices with healthy demand. Also, a physically backed ETF could be introduced in 2011 which could sway investors and how they price lead, although the ETF most likely will not shift the market substantially.

Zinc prices are expected to rebound from the current weakness seen during the holidays and rise in the first half of 2011. Investment demand from the new zinc exchange-traded funds expected to be released in early 2011 should help drive prices. Honrath noted some investment demand for zinc in China which could lend support.

“The ETF Securities launch of physically backed exchange rated products is likely to bolster some investment demand for the metal and prices are likely to grow strongly in the second quarter, possibly even touching $2,800,” said Li.

As of late December, zinc was hovering around $2,422 a metric ton.

While investment demand could increase for zinc, it is not likely to consume the excess supply that is on the market. More supply could arrive as producers in China, Russia, Australia and Canada are expected to increase production in 2011. These elevated inventories are expected to keep a cap on prices in 2011.

Demand for zinc will not be as strong in 2011 as it was in 2010 due to a lack of new projects in the construction sector, mainly in China. 

“Overall, I think the oversupply situation is likely to persist in zinc,” Li said.
This will still lead to growth within the market for 2011 but it will not match the 13.5% year-on-year demand growth of 2010.

Refined zinc supplies will likely rise by about 5% to over 13.4 million metric tons on the demand side mainly due to strong auto-production out of China.

 

By Alex Létourneau of Kitco News aletourneau@kitco.com

2011 Precious Metals Outlook

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