Metals prices will fall 60% by 2011, IMF says

Prices of metals such as copper and aluminium that hit record highs on the back of soaring demand are set to drop as much as 60 per cent over the next five years, the International Monetary Fund warned yesterday.

The global financial watchdog, which is widening its coverage to areas such as asset markets, said prices were unsustainable at their current levels.

Its warning runs contrary to optimism in the industry that prices will stay above their historic highs, although it accepts there is a risk of a correction.

In an analysis of non-fuel commodities to be published next week in its biannual world economic outlook, the IMF said prices would fall as new production capacity came on stream.

Metals prices have soared 180 per cent in real terms since 2002. World stock markets fell an average of 1.2 per cent a year from 2000 to 2005, according to ABN Amro.

Martin Sommer, an IMF economist, said: "Analysis of the aluminium and copper markets suggests the prices of these two metals are above their sustainable levels under various assumptions about global growth." Its forecast showed a real-terms fall, excluding inflation, of 57 per cent in copper prices and 35 per cent for aluminium.

The IMF also said speculative investors had not played a major role in driving up metals prices. "Investors seem to be following price trends rather than creating them," Mr Sommer said.

The major global miners have embarked on a takeover spree, implying they are confident in the strength of future prices. Kona Haque, senior commodities analyst at the Economist Intelligence Unit, said she did not expect such a "sharp and continuous decline" in prices.