One direction for base metals prices: North

MUMBAI (Commodity Online): Past week two news items came to the rescue of metals like aluminium and steel. First one was that the Tata's smallest car Nano is all set to roll out from the company's new plant in Sanand in Gujarat from May 1.

With trial runs over, the company will manufacture 250 vehicles a day from next month. Presently, 4,000 units of the world's cheapest car are being manufactured at Tata Motors' plant in Pantnagar in Uttarkhand, which also manufactures Tata's mini-trucks . The small car production will shift to Rs 2,000-crore Sanand plant from next month. Around 40 auto parts suppliers have been asked to start units as early as possible. Over 20 of them are in advanced stages of construction at vendors' park near the mother plant.

Once fully operational, the Sanand plant will be able to produce 250,000 Nano cars per annum, with possible expansion to take the figure to 500,000 cars a year.

Then came the news that GM, the biggest foreign automaker in China, boosted sales 68% to 230,048 vehicles in March month. That compares with a 33% gain for Japan's Toyota Motor Corp and a 47% jump by South Korea's Hyundai Motor Co in the US, GM raised sales 21% in March to 188,546.

GM aims to increase its China sales to 2 million vehicles this year from 1.83 million in 2009.

Both these reports are the harbinger of a boom for metals like aulminium, steel, platinum and palladium. All these metals are used in a big way in auto making.

So, very soon, you can witness a surge in aluminium and steel prices. Since palladium and platinum are also used in making exhausts of high-end cars, the prices these metals will also see a gain when car sales go up.

If you want more hints for a surge in aluminium prices just check out the reports from National Aluminium Co Ltd (NALCO) and other producers. Nalco has produced 4.31 lakh tonnes of aluminium in 2009-10, an increase of 19.4 per cent, against 3.61 lakh tonnes in 2008-09. And, Nalco also achieved the highest-ever domestic metal sale of 2.89 lakh tonnes, surpassing the previous highest of 2.71 lakh tonnes in 2008-09, with an increase of 6.5 per cent. This is a hint for the things to come in the coming months.

Moreover, base metals have recorded a sharp rise in prices as global demand picks up. Rising alongside are the share prices of the leading metal companies in the country like Sterlite, National Aluminium Company and Hindustan Zinc.

In the last two months, the price of copper, used in the making of electrical equipment and wires, has risen 16 per cent. The price of the metal is now only 11.7 per cent below its all-time high of $8,900, achieved on July 2, 2008.

Similarly, the price of zinc gained 11 per cent to touch $2,377 per tonne on the international exchange. The demand for the metal, used in galvanisation of steel, is rising as steel consumption goes up. Aluminium gained 13 per cent in the same period to touch $2,322 on the exchange.

Demand is emanating from US and Europe. In March the US manufacturing sector grew at its fastest pace in more than five years while activity in Europe picked up with a cheaper euro helping stimulate exports.

Adding to this is the encouraging news from India's industrial sector. In September 2009, India's industrial output grew 9.1%, for the ninth month in a row. This was much better than forecast, raising expectations of strong manufacturing activity in the remainder of the financial year to March 2010 on the back of buoyant domestic demand and a recovering global economy.