By Steve Fiscor, Editor-in-Chief

Base metal prices rallied earlier and more strongly than would typically be expected during the current economic cycle, according to Natixis Commodity Markets Ltd., and anticipation of improving fundamentals clearly played a role. In its most recent report, Metals Review Second Quarter 2011, Natixis explained it thinks copper and tin have the best underlying fundamentals.

Aluminum will eventually move back into a deficit position. The size of the deficit in 2012, at 400,000 metric tons (mt), will not make huge in-roads into the current stock overhang, but Natixis continues to believe the market will be positively surprised by this improvement in the fundamental picture. It forecasts an average annual price of $2,650/mt this year followed by $2,750/mt in 2012.

With copper fundamentals remaining solidly supportive, and with some signs emerging that Chinese copper demand is slowly beginning to improve after the recent soft patch, Natixis is cautiously positive on the outlook for copper prices. Yes, there is scope for the recent correction to extend further, but if copper prices are being dragged lower by a more general decline in commodities, the resultant decline in inflationary pressure should be positive for the outlook for industrial demand in developing countries. Prices for copper should average $9,450/mt and $9,700/mt over 2011 and 2012, respectively.

The lead market is not quite as tight as some might have anticipated. An upward revision to projections for global production growth this year means this situation may persist for a little longer, with the market in oversupply of perhaps a little more than 100,000 mt in 2011. Natixis anticipates the market will switch to a deficit next year as supply growth slows relative to continued robust demand. Resulting lead prices should average $2,650/mt this year. Thereafter, as the market returns to deficit, prices are expected to strengthen to an average of $2,850/mt in 2012.

The nickel market should register a deficit of around 10,000 mt this year. This simple total hides what Natixis expects will be a year of two halves, in which a significant deficit during the first half gradually morphs into a surplus as the year progresses. Moving into 2012, consumption growth is expcted to slow while recently commissioned ferro-nickel operations ramp up to full capacity. After two years of deficit, the market will gradually shift into oversupply next year. Prices will average $24,000/mt in 2012.

The tin market is expected to post a deficit this year of around 16,000 mt, as the supply response remains inadequate to match robust demand. Tin prices are expected to average $31,500/mt this year. In 2012, tin prices will remain elevated, broadly maintaining 2011 levels.

After five consecutive years of zinc market surplus, 2012 is likely to see a global deficit of 55,000 mt, primarily as a result of a slowdown in production. With this anticipated improvement in fundamentals, zinc prices are expected to average $2,350/mt in 2011. Going forward, the growing tightness in the zinc concentrate market is expected to push prices to an average of $2,700/mt in 2012, although high stocks are likely to limit the extent of the rally.

For more information or a full copy of the 60-page report, Metals Review Second Quarter 2011, contact Natixis in London (T: +44(0)20 3216 9000, or