Base Metals Review: Commerzbank

Under pressure from sharply falling oil prices and the weakness in the precious metals sector, base metals also shed their early gains again yesterday. 

The poorer than expected industrial production in the US in February is also likely to have played its role in this.

This morning sees metals trading largely unchanged at the previous day's levels. They are thusnot profiting from the positive Asian equity markets - the Chinese CSI 300 for example closed atits highest level since August 2009 - while the weaker US dollar is likewise lending no support.

According to data from the International Lead and Zinc Study Group (ILZSG), global lead andzinc markets were virtually balanced in January: demand on the lead market exceeded supply by8,600 tons, with the result that this was already the fourth consecutive month to see a supplydeficit. 

The situation is thus tightening again, which we believe is attributable among other thingsto seasonal effects because demand for batteries is particularly high in the winter months.

Although the global zinc market showed a moderate supply surplus of 19,000 tons, according tofigures from the ILZSG, zinc remains in very tight supply in our opinion given that last year'sdeficit totalled nearly 300,000 tons. 

What is more, LME zinc stocks have already been reduced by 22% since the beginning of the year and currently find themselves at a five-year low. We expect to see higher lead and zinc prices in the course of the year.