Metals seen supported by firm fundamentals

Copper, zinc and nickel remain fundamentally strong, but recent macro-economic indicators may continue to dampen sentiment across base metals markets, Standard Bank said in a monthly report. Base metals had been hit with other commodities in mid-May by worries about world demand growth.
Rising inflation, particularly in the United States, leading to higher interest rates and a stronger dollar, had been the trigger behind the recent correction, the bank said. "Irrespective of the supply-demand fundamentals of each individual metal market, all have been dragged lower by commodity investors moving to reduce risk," it said.
Copper hit an all-time high of $8,800 per tonne on May 11, but prices started to fall the following week. On Monday the metal was at $7,250/7,270 by 1450 GMT. However, copper supply problems might prompt prices to go higher again. "Labour disputes have been a particular problem in recent years."
Some 22 percent of the world's copper mine production capacity faced strike threats in the next few months. The bank raised its 2006 price forecast to $6,300 a tonne, from a forecast in May of $5,950, and to $5,300 in 2007, from $5,000.
It made significant upward revisions to its nickel price forecasts. Prices might reach $19,500 in 2006, against a previous forecast of $17,000, and for 2007 the bank raised its forecast to $16,250 against the May forecast of $15,500. "Fundamentally, the outlook for nickel remains bullish too on the back of the ongoing demand recovery and tight supply."
Nickel was at $21,825/21,875 on Monday, supported by inventories in LME warehouses falling below 10,000 tonnes. On Monday stocks hit their lowest since September 2005, down by 432 tonnes to 9,990. The fundamentals for zinc remained as tight as ever, with stocks falling to a five-year low of 214,925 tonnes on Monday.
"Once the bears have had their day, zinc's fundamentals will be able to re-assert themselves and we would expect prices to rally back towards their highs again."
The price forecast for zinc was lifted to $3,350 in 2006 from $3,000, while the 2007 forecast remained unchanged at $3,300.
The bank saw no shortage of aluminium supply and believed that the only source of significant upward momentum for prices looked to be any strength that spilled over from the other metals.