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Global metal prices likely to retreat: IMF

WASHINGTON - Global metal prices are likely to retreat over time from their current high levels as new mine output boosts supplies, the International Monetary Fund said on Wednesday.

IMF’s chief economist Raghuram Rajan said at a news conference that metal markets appear to be fairly valued.

“Unless there are serious distortions, markets are fairly valued at the current time ... given supply constraints,” Rajan told a news conference at the launch of the analytical chapters of the IMF’s semiannual World Economic Outlook.

“The point we’re making is more about the medium-term prospects for these metals, where we believe a lot of supply is in the works through higher investment, and therefore we expect the supply-demand balance ... will lower prices,” he added.

Contrary to popular wisdom, speculators did not play a major role in metals price movements, the IMF said.

“There is little statistical evidence that movements in net speculative positions lead spot price changes,” the IMF said.

It noted metal prices had soared in real terms by 180 percent since 2002, outstripping increases in oil prices.

It said IMF analysis of aluminum and copper markets -- the two most widely traded base metals -- suggest their prices are above sustainable levels. In the baseline scenario, aluminum prices should decline by 35 percent and copper by a larger 57 percent by 2010.

It said futures markets also forecast a gradual decline in prices of most metals over the next five years.

The IMF said metal prices have been driven by world demand, particularly in China, which has contributed 50 percent to the increase in global consumption.

Looking ahead, the IMF said rapid industrial output growth, construction activity, and infrastructure needs could sustain demand from emerging economies for metals at high rates in the medium term.

Rajan said demand for metals in China would not be reduced by Beijing’s efforts to rebalance economic growth from investment to consumption.

“For an economy at China’s level of income, the kinds of things that the Chinese will consume or use will be material intensive ... more housing, more cars, more hard goods,” Rajan said, “If domestic demand in China picks up there would be more demand for these metals,” he added.