In this issue, we are releasing our disaggregated supply-demand balances for 2011. For some metals, there is a clear fundamental signal for even higher prices than we had previously forecast, such as for copper, tin and lead, while for other metals, such as zinc and aluminium, we have downgraded our price expectations. We expect consumption growth in 2011 to slow from this year's fast pace, but on the whole we expect growth to be above trend, supported by slower, but still strong economic growth. China's voracious demand for metals is unlikely to abate in 2011, driven by 9% GDP growth and continued strong infrastructure investment. While the OECD will not benefit in the same way from restocking as it did this year, we expect end-demand conditions to continue improving, albeit at a slower pace, in line with a sustained economic recovery.

We expect the supply side to be an important differentiator of price performance, with copper and lead facing amongst the biggest challenges, in our view. Copper mine production growth is likely to struggle, which suggests there will have to be large draws in metal inventories to keep up with even a modest rate of demand growth. As such, we see the potential for copper prices to reach a new record high. For lead, mine supply looks tight going into 2011, so without another large jump in secondary production, which we see as doubtful, refined production growth will be constrained. The outlook for aluminium prices is relatively benign with excess smelting capacity and ample raw material supply pointing to strong production growth, while costs will provide downside support. We have downgraded our price expectations for zinc in 2011 on the basis of stronger refined production. That said, we see potential for significant upside to prices later next year and onwards as mine supply begins to tighten. We see some short-term softness for nickel as stainless demand wanes, but this will be temporary as the supply demand balance improves through 2011. Mine supply growth looks likely to be weak since we are not
optimistic about high pressure acid leach projects.

In the precious metals, we expect many of the dynamics that are currently in play to continue to take centre stage in 2011. Although we expect gold's implied physical surplus to fall, excess supply will need to be met by investment demand where, for now, appetite is set to remain robust as fears of inflation and the desire to hold a hard asset supports interest.

David Fuller's view The forecast of a new high for copper (p&f, weekly & daily) is certainly interesting. It has risen for the last six consecutive days, breaking above some lateral trading which now looks like a support building process and is also back above the rising 200-day moving average. Some consolidation of these gains is likely before long but close beneath the last reaction low near 292¢ would now be required to offset sideways to higher trading over the medium term.

Tin (p&f, weekly & daily) has actually led the move to the upside recently. It looks temporarily overextended so here also some consolidation is likely before long before underlying trading supports higher levels.

The other LME-traded industrial metals are lagging behind tin and copper but have definitely lost downside momentum and look like recovery candidates.

This is a favourable background for industrial metal miners which had been buffeted recently by the Australian Super Tax, now being watered down, and an overreaction to China's slight slowdown in GDP growth.