The global economy keeps chugging ahead and, with it, so does demand for nickel, copper, iron ore, bauxite, and other metals. Although financial market speculation drives some of the day-to-day volatility in metal prices, the underlying dynamic of increased demand without increased production remains the primary reason for the recent sharp increase in prices.

So says a new report by the Standard & Poor's credit-rating organization, which suggests that "healthy fundamentals should remain in place for at least the next couple of years, and will sustain prices at levels that offset rising costs and maintain credit quality."

The price of aluminum touched a high of $1.34/lb on January 24, 2007, up 30% from its $1.03 closing on Jan. 2, 2006. It has lingered near this level, trading around $1.27 in June despite softening demand from some end markets. The price of aluminum will gradually begin to decline, however, says the S&P report. The primary reason is the rapid decline in the price of alumina, the raw material for aluminum. Although recent spot alumina prices were at $350 per metric ton, they were as low as $250 earlier this year, from about $650 in 2006.