Prices of metals in 2010 are expected to be high and volatile, with a mean price less than the current day level for most metals, according to Raw Materials Group (RMG).

The Swedish analyst’s annual full-year forecast shows that a falling market has been substituted by a market with physical demand and strong speculation over price.

Factors that have driven prices include the strong demand from Asia, especially China, and speculation from financial players about the industry.

RMG says for most metals, stockpiling and price hikes are taking place as the end consumption rate is low in relation to the period prior to the economic downturn.

Mining sector activity this year is expected to remain high, a move that will be seen beyond 2010 due to strong demand from developing countries and difficulties arising from establishing new capacity at the mining phase.

RMG’s forecast says that metal prices are expected to increase further as it becomes increasingly tough, partly due to funding problems in the wake of the economic downturn, to cope with future demand for metals.

Several miners have restarted zinc and metal production – a result of high metal prices – and this could pose a challenge to the sector this year, RMG said.

During the initial half of 2010, base metals will undergo a price correction from the current prices.

RMG said that for the full year base metals will stabilise at a 10% to 20% higher level in 2010 compared to 2009, a slight downturn from current prices.

The strong position of BHP Billiton, Rio Tinto and Vale will make it difficult for steel companies to negotiate iron ore price reductions.