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. Last Updated: 07/27/2016

Metals Seen Stronger as Fed Forgoes Hike

Despite a lackluster response to the U.S. Federal Reserve's move not to hike interest rates, analysts still expect a strong metals rally before year's end.

Russian metals and mining firms are among those expected to benefit from the tight global supply of nickel and zinc and falling stockpiles of lead and copper.

Russian firms tend not to hedge, or take measures to protect themselves, against fluctuations in the metals market. These firms are better poised to take advantage of price hikes.

"At present the market supply is tight. If copper pushes through $8,000 a ton, there is scope for $250 on the up-side immediately," said Martin Hayes, a metals analyst with the London-based BaseMetals agency.

Copper peaked at $8,800 on May 11. Late Wednesday, the metal traded at $7,900 per ton on the London Metals Exchange.

A rash of ongoing supply disruptions -- a strike at Chile's Escondida, the largest copper producer in the world; a cave-in at Codelco's Chuiquicamata mine, also in Chile; and an increase in demand from China -- are likely to push copper prices up, analysts say.

"There's warning signals that copper supplies are low," Hayes said. "Strengthening copper will be reflected in other metals."

Denis Nushtayev, a metals analyst with Moscow's Metropol brokerage, sees aluminum and zinc rising on the back of the tightening copper supply. That spike would most immediately benefit Norilsk Nickel, Russian Aluminum and SUAL; it would also help Russian gold producers such as Polyus, Highland Gold and Peter Hambro Mining.

"And if the dollar weakens further, it's a straight road to commodities rising," Nushtayev added. The U.S. dollar has fallen by 7 percent this year against the ruble. A recent report by the International Monetary Fund suggested that, even at current levels, the dollar is 15 percent to 35 percent overvalued.

Should copper approach $9,000 per ton, Nushtayev said aluminum prices were likely to hit $3,000 to $3,500 per ton. Zinc, he said, will reach $4,000. On Wednesday, aluminum traded at a little more than $2,500 and zinc was close to $3,400 on the London Metals Exchange.

Also, increased industrial output could help boost metals prices, according to a Deutsche Bank report released earlier this year. The report forecasts a rise of 7.2 percent in industrial production this year and 6.4 percent next year.

The commodities' surge would lose some of its strength if the Fed raised interest rates to reign in inflation. Inflation figures are to be announced next week.

"The Fed's Tuesday decision was positive news, but all eyes are trained on inflation data," Nushtayev said.