Asian turmoil hits base metals.The demand for base metals in the new year takes a hit as the current Asian financial contagion financial contagion
A financial problem that spreads among companies or regions. For example, Russia's 1998 default triggered sharp declines in the market values of debt issued by emerging countries. spreads around the globe. However, the scenario today is less gloomy than previously anticipated.
Concern over the impact of a financial meltdown in the Asian tiger economies, and anaemic a·nae·mic
Variant of anemic.
anaemic or US anemic
1. having anaemia
2. pale and sickly-looking
3. lacking vitality
Adj. economic activity in Japan, is serving to undermine the prices of most industrial raw materials. Merrill Lynch Merrill Lynch & Co., Inc. (NYSE: MER TYO: 8675 ), through its subsidiaries and affiliates, provides capital markets services, investment banking and advisory services, wealth management, asset management, insurance, banking and related products and services on a global basis. envisages a generally weak base metals market in 1998, largely due to this growth slow-down across Asia.
It would be false therefore to present a bullish scenario for demand and prices of base metals, amid signs of probable deflation spreading among the major metal-consuming countries. Although the first half of 1997 was seen as the beginning of a bull market in base metals, faltering growth in Asia has dampened the outlook during the second half, and this is reflected in the declining physical metal premiums on the London Metal Exchange London Metal Exchange (LME)
A market for trading base metals, where traded options contracts are available against the underlying futures contract. (LME See London Metal Exchange.
See London Metal Exchange (LME). ).
Since the mid-1960s, the Asian region, including Japan and China, has remained a dominant force in the production and consumption of base metals. Before its recent currency turmoils, it was estimated that between 1995 and 2005, a massive $3tr would be spent on infrastructural projects in Asia, hence boosting demand for construction materials.
Recent price weakness, however, reflects the deterioration in supply and demand fundamentals, and also the impact of the hedging mechanism. Investment funds Noun 1. investment funds - money that is invested with an expectation of profit
assets - anything of material value or usefulness that is owned by a person or company have been selling future contracts heavily on the LME, in order to recoup losses sustained on the global stock markets since late October. Despite this, analysts say that funds might yet increase their weighting later this year, especially in aluminium, zinc, and nickel, where fundamentals are looking positive. Total commercial base metal stocks are presently significantly lower than they were at the end of 1993. Thus analysts believe that metals are strategically placed to generate positive returns on such investments over a period of time.
Towards the end of 1997, a number of leading institutions, including the Standard Bank of South Africa South Africa, Afrikaans Suid-Afrika, officially Republic of South Africa, republic (2005 est. pop. 44,344,000), 471,442 sq mi (1,221,037 sq km), S Africa. , Merrill Lynch, Rudolf Wolff Rudolf Wolff & Co. was founded in London in 1866 as a metal merchant. In 1877 Rudolf Wolff was amongst the group of merchants who formed the London Metal Exchange. Over the years Rudolf Wolff & Co became one of the leading brokers and Ring dealing member of the London Metal , HSBC HSBC Hongkong and Shanghai Banking Corporation
HSBC Humane Society of Broward County (Florida)
HSBC Humane Society of Bay County (Bay County, Michigan) James Capel, Billiton Metals, the Economist Intelligence Unit The Economist Intelligence Unit (EIU) is part of The Economist Group. It is a research and advisory company providing country, industry and management analysis worldwide and incorporates the former Business International Corporation, a U.S. , and Metal Bulletin Research produced a comprehensive analysis on the outlook for base metals.
In summary, analysts see a manageable medium-term downturn in the copper market. A substantial expansion in mine and refining capacity, and a slow-down in industrial output in countries like Taiwan and South Korea (big consumers of copper) have resulted in downward pressures on prices. The International Copper Study Group reported a global surplus of refined production for the first eight months of 1997 of around 199,000 tonnes. Experts say the copper supply-surplus will continue to accumulate until at least 2000. Billiton Metals predicts that the surplus will rise to 510,000 tonnes in 1998, as new output capacity comes on stream. This will be reflected in higher LME stocks, which are projected to rise to around 5.5 weeks of consumption by the end of 1998, compared with below 3.5 weeks of consumption in 1996.
In response to expectations of sluggish demand and growing supplies, as well as the stock levels of copper, price forecasts for this year range between $1,950 and $2,204 per tonne, as compared with an estimated average of $2,323 per tonne in 1997. SBC (1) (SBC Communications Inc., San Antonio, TX, www.sbc.com) A large, national telecommunications company that grew from a multitude of local and regional companies, including Southwestern Bell, Pacific Bell and Nevada Bell, into a single, unified brand by 2002. Warburg estimates Western mine output in 1997 at 7.7m tonnes, rising to 8.1m tonnes by 2000.
Zinc, used primarily to galvanise Verb 1. galvanise - to stimulate to action ; "..startled him awake"; "galvanized into action"
ball over, blow out of the water, floor, shock, take aback - surprise greatly; knock someone's socks off; "I was floored when I heard that I was steel for the construction and automotive industries, was a star-performer among base metals for much of 1997. Zinc prices rose to a 7-year peak of $1,763 per tonne in July, underpinned by robust demand from the brass and galvanising Adj. 1. galvanising - affected by emotion as if by electricity; thrilling; "gave an electric reading of the play"; "the new leader had a galvanic effect on morale"
galvanizing, galvanic, electric industries, declining inventories, and technical squeeze. From October onwards, the market lost its momentum, as prices experienced a spectacular correction, largely due to technical selling. The LME stocks have risen, and the market has had to absorb a considerable quantity of metal.
There is, however, a consensus that zinc's fundamentals remain bullish over the medium-term. Rudolf Wolff points out that under-investment in the mid-1990s will lead to a structural deficit at least until 1999. The EIU EIU Economist Intelligence Unit
EIU Eastern Illinois University
EIU Even If Used
EIU Experimental Interaction Unit
EIU Engine Interface Unit
EIU Ethernet Interface Unit
EIU Electronic Interface Unit
EIU External Interface Unit projects a cumulative supply deficit of 1m tonnes over the period 1995-99. Billiton and EIU expect Western mine output to reach 5.8m tonnes in 1998, as new mining and smelting capacites are brought on stream in the US, Finland and Peru. A strong consumption growth by Western galvanisers is also expected (EIU estimates consumption at around 6.64m tonnes). After net exports from the former Soviet Union, the EIU projects a supply deficit of 220,000 tonnes in 1998. The average zinc price in 1998 is forecast to be between $1,300 and $1,525 per tonne, compared to an estimated $1,336 in 1997.
Aluminium has been quite resilient in 1997, averaging about $1,605 per tonne up from $1,500 in 1996. Billiton Research estimates world production in 1997 to be 16.165m tonnes, and consumption to be growing by 4.6% to around 18.65m tonnes. Billiton sees total production rising to 16.9m tonnes in 1998, up 4.5% over 1997, as a sizable amount of new smelting capacity is brought on stream in the Middle-East, Australasia, South Africa and Iceland. Consumption is expected to rise modestly by 2.5% to 19.115m tonnes. But with bearish demand from Japan, where internal stocks are high, global consumption offtake Off´take`
n. 1. Act of taking off; specif., the taking off or purchase of goods.
2. Something taken off; a deduction.
3. A channel for taking away air or water; also, the point of beginning of such a channel; a take-off. may be lower. Asia now consumes more aluminium than Europe, and within the next few years, it could exceed North America.
Some analysts anticipate some upside potential Upside potential
The amount by which analysts or investors expect the price of a security may increase.
The potential price or gain that may be expected in a security or in a security average, generally stated as the dollar for aluminium in 1998. The industry has not invested adequately in new capacity to keep pace with demand, and lower exports from the former Soviet Union, should keep market conditions quite tight. A supply-deficit of about 230,000 tonnes during 1997 was estimated by Metal Bulletin Research, and this shortfall is expected to increase steadily over 1998 and 1999. As a result, prices could be underpinned by falling LME stocks.
Pressures on aluminium could increase, if inventories fall to a critical level of between 4.5-5.5 weeks' consumption. At the end of 1996, LME and producers' stocks were 2.6m tonnes, equivalent to 7.7 weeks' consumption. Price projections for 1998 range between $1,650 and $1,860 per tonne.
The nickel market has been gripped by a bearish mood since the second half of 1997, largely due to higher levels of production to meet robust demand for stainless steel stainless steel: see steel.
Any of a family of alloy steels usually containing 10–30% chromium. The presence of chromium, together with low carbon content, gives remarkable resistance to corrosion and heat. (which accounts for 65% of nickel demand), and from the recent surge in exports from Russia. World steel consumption in 1997 rose by an estimated 4.5% to a record 695m tonnes.
HSBC James Capel analysts estimate the total Western supply (including exports from the former Soviet Union) at 923,000 tonnes in 1997. The metal's performance in 1998 could be undermined by a demand slow-down from stainless mills, and large stainless-steel inventories. The market remains in a state of "near-equilibrium." Analysts estimate a supply-deficit of 17,000 tonnes in 1997, falling to only 3,000 tonnes in 1998. Price forecasts for 1998 range between $7,250 and $7,494 per tonne, compared with an estimated $7,017 per tonne in 1997.
Essentially, the fortunes for base metals are contingent on the pace of industrial output in the major consuming countries. The fall-out from the crisis in SE Asia could have a sustained dampening effect on prices, and is hence likely to derail de·rail
intr. & tr.v. de·railed, de·rail·ing, de·rails
1. To run or cause to run off the rails.
2. growth in the short-term. But beyond 1998, the global economic cycle could be favourable for base metals consumption.