Natixis Commodity Markets notes “in early February, the copper price finally breached $10,000/t, while tin is in excess of $30,000/t. Even the base metals where there has been less obvious fundamental support are posting strong gains. Despite the potential for a surge in nickel supply in 2011 and 2012, the price is well in excess of $25,000/t, while aluminium prices have pushed above $2,500/t, despite LME stocks well in excess of 4 Mt.”Therefore the key question facing the market is whether base metal prices can continue to rally after their stellar performance in recent months. In general, Natixis Commodity Markets believes that the answer to this question is “yes,” but the risks for some base metals are becoming increasingly skewed to the downside, with the prospect of a potential near-term (if relatively short-lived) correction in prices becoming increasingly likely.Aluminium – “Under our base case projections, we expect the market to revert to a small deficit position in 2011, with a shortfall expected in 2012 as well. This will be encouraged by a more balanced supply-demand picture in China. We forecast an average annual price of $2,625/t in 2011, compared to last year’s outturn of $2,173/t. For 2012, prices could rise to an average of $2,700/t.Copper – “Global copper supplies will remain tight as output will struggle to keep up with the pace of demand. Nevertheless, we do not share the views of many in the market that project a deficit of upwards of 400,000 t this year. For us, a combination of higher substitution and other measures to improve efficiency will cap demand growth for copper at around 5%. Against this, although new mine supply might remain broadly flat, increased scrap supply should leave a global deficit of around 150,000 t. We are also struck by the sharply divergent messages coming from higher copper prices but also higher copper TC/RCs, the latter suggesting a more ample supply of concentrates. Although the path of least resistance may currently be toward higher prices, there is greater scope for disappointment if copper’s fundamentals prove to be less bullet-proof than the market currently imagines. With prices above $10,000/t, our base case scenario therefore anticipates a near-term correction before copper prices resume their upward trend. This should allow copper prices to cling on to most of their recent gains, supporting average annual copper prices of around $9,000/t in 2011, followed by $9,500/t in 2012.Lead – “Despite there being no immediate shortage of lead at present in the global market, our medium-term outlook is positive, based upon the rapid expansion of global car fleets thanks to the rise in automobile demand among developing countries. As such, we expect the lead market will begin to tighten over the forecast period. We expect the market will experience two consecutive years of deficit in 2011 and 2012, of 63,000 t and 168,000 t respectively, which should support average prices of $2,650/t this year and $2,900/t next year.Nickel – “In some respects, the nickel market stands out among the base metals in that there is a significant amount of additional supply in the pipeline. Given the restart at Vale’s Sudbury operation and, soon, Voisey’s Bay, combined with additional output expected from a number of ferro-nickel operations, notably Onca Puma and Barro Alto, output should rise sharply this year. 2012 should again be dominated by the supply-side, as the much anticipated HPAL projects (Goro, Ambatovy and Ramu) gradually ramp up to full production. Taking these longer-term fundamentals into consideration, we are forecasting an average price in 2011 of $24,500/t, followed by $24,000/t in 2012, compared with current prices at over $28,000/t.Tin – “The exceptional surge in tin prices in recent months leaves the market vulnerable to a correction. However, the positive underlying supply-demand balance fundamentals suggest that the path of least resistance in the short-term remains upwards. We believe that the structural tightness of tin supply will, by and large, remain in place over the next two years.“Our projected 2011 average price of $29,000/t represents a 42% year-on-year increase and is over 80% higher than the level seen at the start of 2010. That this price is below the current spot price reflects our concern that tin prices might be particularly vulnerable to any economic setbacks, given the market’s high burden of expectations. Thereafter, we expect prices to rise to an average of $30,000/t over 2012 as the market remains in deficit.Zinc – “Over the longer term, we believe that the outlook for zinc remains positive, as strong demand from the BRICs drives the global total. We expect the zinc market will post a second consecutive year of deficit in 2012, of 160,000 t, as production growth slows in line with the progressive demise of the huge Brunswick mine. In common with a number of other base metals, we forecast strong gains in average annual prices, but limited gains from the levels already experienced in early 2011. We see average annual prices rising to $2,525/t and $2,750/t respectively over the next two years.