Brighter outlook for metals. (Commodities).
With the spectre of a global economic downturn now fast receding and, indeed growth expected in the near future, the outlook for metals has looked far brighter than it has been for the past few years.
African producers of base metals have had to struggle against tough market conditions over the past year and a half, but now some improvements are on the horizon. The African continent possesses about 20% of the globe's reserves of industrial raw materials, but its respective share of world production has steadily fallen during the past two decades, reflecting low levels of investment in new capacity and continuing geopolitical ge·o·pol·i·tics
n. (used with a sing. verb)
1. The study of the relationship among politics and geography, demography, and economics, especially with respect to the foreign policy of a nation.
a. instabilities in mineral-rich regions of former Zaire and Angola.
Markets for industrial commodities are finally looking beyond the clouds of global economic slowdown to the blue sky of imminent economic upturn. The Bank for International Settlements, the world's central bankers, comments: "The global economy has come through the threat of recession and started expanding again."
The behaviour of industrial metals provides a good barometer of the health of global economy. The metals markets have recovered during the first-quarter, judged by 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). ) prices. Goldman Sachs The Goldman Sachs Group, Inc., or simply Goldman Sachs (NYSE: GS) is one of the world's largest global investment banks. Goldman Sachs was founded in 1869, and is headquartered in the Lower Manhattan area of New York City at 85 Broad Street. , the US investment bank, in its March report noted: "It is increasingly unlikely that industrial metals prices will trade back to November's lows," and that "price risk will increasingly shift toward the upside as the year progresses (particularly for aluminium and copper)".
Prices for industrial commodities slumped to historic lows during late 2001. Copper plunged to a 15-year low, zinc to 14-year lows, while nickel and aluminium dropped to three-year lows. During 2001, a year of sagging industrial demand, average prices for major metals were below levels of 1999 and 2000. Nickel recorded falls of 31%, zinc 21.5%, copper 13%, tin 17.5% and aluminium 7%.
Sluggish demand in the industrialised Adj. 1. industrialised - made industrial; converted to industrialism; "industrialized areas"
industrial - having highly developed industries; "the industrial revolution"; "an industrial nation" world and excess production capacity of most base metals led to ever larger stocks and plummeting prices. End-2001 aluminium (LME) stocks were reported at 821,850t (up 155% over previous year), copper 799,225t (up 124%), nickel 19,188t (up 98%), tin 30,550r (up 137%) and zinc 433,350t (up 122%). The price of lead, however, proved resilient rising 5%, underpinned by a production deficit of 5,000t and low stockpiles.
Indicators turn positive
In essence, the future of metals rests on the strength of global industrial production. Recently, leading economic indicators Leading economic indicators
Economic series that tend to rise or fall in advance of the rest of the economy. in North America North America, third largest continent (1990 est. pop. 365,000,000), c.9,400,000 sq mi (24,346,000 sq km), the northern of the two continents of the Western Hemisphere. and Western Europe Western Europe
The countries of western Europe, especially those that are allied with the United States and Canada in the North Atlantic Treaty Organization (established 1949 and usually known as NATO). (the main consuming regions) have turned positive, thus suggesting improved confidence within the manufacturing and services industries. More signs of global recovery will boost base metals consumption in the coming months.
Since the mighty American economy was the principal cause of damage to metals/minerals markets in the second-half 2001, the prospects of a brisk US recovery should be a welcome news for the world's metals/mining companies. The US consumes more than 25% of the world's industrial minerals every year. The Federal Reserve issued an upbeat statement saying the US economy was expanding at a 'significant pace', and firms scrambled to rebuild depleted de·plete
tr.v. de·plet·ed, de·plet·ing, de·pletes
To decrease the fullness of; use up or empty out.
[Latin d stockpiles.
The data showed that US industrial production, led by a rebound in output of durable goods durable goods
Goods, such as appliances and automobiles, that have a useful life over a number of periods. Firms that produce durable goods are often subject to wide fluctuations in sales and profits. Also called consumer durables. such as steel and high-technology products, rose during the first-quarter after sustained contractions over the past year.
The International Monetary Fund has also upgraded the US's economic growth forecast to 2.2% in 2002 (up from 1.4% last December). The base metal cycle has turned and as world-wide recovery in demand takes place, producers should gain higher foreign exchange earnings. 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. (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 ) price index of base metals is forecast to rise 3.1% this year, compared with 11.4% drop in 2001.
This year, more optimistic metal analysts expect aluminium to average $1,549t, copper $l,700t, lead $575t, Nickel $6,612t, tin $4,694t and zinc $970t. The commodity funds have now started buying into the cheaper metals markets in anticipation of significant price rallies in the third-fourth quarters or early 2003 as economic growth in America, Europe and Asia-Pacific picks up.
Most metals are still expected to be in surplus in 2002. But compared with recent years, the Years, The
the seven decades of Eleanor Pargiter’s life. [Br. Lit.: Benét, 1109]
See : Time rate of production increases should slowdown because of supply cutbacks and mine closures.
Copper, the most-heavily traded commodity on the (LME), is also the world's most widely-used electrical conducting material. Copper specialist Bloomsbury Minerals Economics (BME BME
1. Bachelor of Mechanical Engineering
2. Bachelor of Mining Engineering
3. Bachelor of Music Education ) estimates that global consumption declined by 2.3% to 14.88mt, while total production rose 3.4% to 15.33mt during 2001. For 2002, it predicts a modest supply-deficit of 100,000t, based on demand of 15.25mt and total supply 15.15mt. The London-based consultancy said: "We expect to see a very substantial rebuilding of stocks of semi-fabricated copper and alloy products, so we do expect copper consumption growth to exceed global industrial production growth."
UBS UBS Union Bank of Switzerland
UBS United Bible Societies
UBS United Blood Services
UBS United Buying Service
UBS Used Bookstore
UBS University Business Services
UBS Universal Building Society (UK)
UBS Ulaanbaatar Broadcasting System Warburg, the European investment bank European Investment Bank, nonprofit bank created in 1958 by the six founding countries of the European Economic Community (now part of the European Union [EU]). , comments: "In the medium term there is much less new production capacity for copper coming onstream. We are starting to run low on new projects, while demand should respond relatively quickly to the economic recovery."
The second-quarter usually sees strong seasonal demand for refined copper, due to higher levels of construction activity in the northern hemisphere. However, despite projections of copper deficit, stocks over-hanging the market will put a cap on prices. Macquarie Bank Macquarie Bank Limited is an Australian merchant bank and financial services group, providing a broad range of products and services to investors, corporations and government. Its global headquarters is in Sydney, and it is listed on the Australian Stock Exchange (ASX). of Australia estimates total (LME) producer, consumer and merchant copper stocks at highs of 1.65mt this year.
However, industry analysts do not foresee copper price rising to $2,000t level in the near term.
Aluminium has wide industrial uses, including automotive, aviation, construction, power cables and packaging sectors. Therefore, the light-metal's demand growth is mainly reliant on global economic activiry. The World Bureau of Metal Statistics estimates last year's refined production at 24.49mt, against consumption of 23.81 mt. For 2002, Macquarie Bank projects Western world's demand to surge by 3.3% to 19.71mt and total supplies, including imports from the former Eastern Bloc increasing by around 2% to 20mt resulting in oversupply o·ver·sup·ply
n. pl. o·ver·sup·plies
A supply in excess of what is appropriate or required.
tr.v. o·ver·sup·plied, o·ver·sup·ply·ing, o·ver·sup·plies of 290,000t.
Mining and metals industry consultants, Brook Hunt, predicts that demand will grow by about 3% this year, following last year's 7% slump, production will also rise and net imports from the Commonwealth of Independent States Commonwealth of Independent States (CIS), community of independent nations established by a treaty signed at Minsk, Belarus, on Dec. 8, 1991, by the heads of state of Russia, Belarus, and Ukraine. Between Dec. 8 and Dec. will remain high. They expect another year of surplus to keep a lid on prices.
This March, (LME) aluminium stocks were reported at a seven-year high of over 1mt. In the fourth-quarter of 2001, aluminium received some support from closure of smelters in the US Pacific Northwest and Brazil because of power outages.
Deutsche Bank (Germany) say: "We don't see a significant amount of capacity coming back onstream in 2002 but the market will still be in surplus, albeit at a slightly lower level."
In 2001, Africa produced about 1.44mt, equivalent to 7% of total aluminium output, according to the International Aluminium Institute. Major producing regions were North America (25.4%), Western Europe (19%) and East/Central Europe (18%).
The demand for nickel from the 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. industry (which accounts for two-thirds of total nickel off-take) should recover in the second-half, coupled with gradual re-stocking will underpin prices towards the end-year. According to the World Bureau of Metal Statistics, nickel consumption last year was static at 1.l4mt, against mine production of 1.19mt. Steel makers in North America and the European Union European Union (EU), name given since the ratification (Nov., 1993) of the Treaty of European Union, or Maastricht Treaty, to the
European Community (EU) were cutting production because of over-capacity and a marked reductions in aircraft orders due to downturn in global aviation industry after the September 11th terrorist attacks in America. That hit demand for specialised nickel alloys and super-alloys used in aero-engines and fuselage fittings. For 2002, the EIU projects a 5% surge in the Western world's demand, to 1.13mt, and total output exceeding 1.21mt partly due to higher Russian exports.
Zinc, the third most heavily traded metal after copper and aluminium, is languishing lan·guish
intr.v. lan·guished, lan·guish·ing, lan·guish·es
1. To be or become weak or feeble; lose strength or vigor.
2. well below levels of early 2001, when (LME) prices were above $1,000t. Last year, sluggish industrial activity and declining automobile sales across America and the EU countries had affected zinc's usage. Consumption fell 2% to 8.58mt, but supply of zinc concentrates rose to almost 9.1mt, according to the World Bureau of Metal Statistics.
Construction and automotive sectors are major users of galvanised sheet accounting for over 50% of zinc off-take. The supply/demand projections indicate a metal surplus of 600,000t in 2002. The continuation of a 'supply-glut' has inflated producer and consumer stocks, a trend keeping prices depressed.
There is potential for a strong recovery in 2003. Prices and demands for industrial metals are expected to rise substantially, thus causing stockpiles of all traded metals to fall substantially. Some industry analysts foresee firmer prices by mid-2003, with aluminium at $1,653t, copper $2,094t; lead $661t, nickel $8,265t, tin $5,510t and zinc $1,102t. However, these bullish projections assume robust industrial production in the (OECD OECD: see Organization for Economic Cooperation and Development. ) economies, East Asia and China.
Metals Production: Africa's (%) share of global production Gold 26-30 Platinum 75 Palladium 25 Copper 5 Aluminium 7 Zinc 3-5 Nickel 7