BASE METALS
scaled back, due to the tight concentrate position. At the same time,
• Significant increases in zinc mine production in China and
demand growth outside of China is not contributing to the bull mar-
Peru were the main drivers behind arise in global output of 9.3%
ket. Western consumption fell 3.3% in the first five months of the
during the first half of 2007 compared of same period in 2006.
year, to 2.202m tonnes. This stemmed primarily from the drop in US
• An increase in European refined zinc metal production of
offtake, itself down 8% to 634,000 tonnes – a trend that, judging
4.9% was primarily a consequence of higher output in Finland,
from vehicle sales, is set to continue.
Poland and the Russian Federation. This rise together with
increases in Australia, China, India and Mexico were the primary
... lower supply has been partially offset by weaker
influences on an overall escalation in world output of 9.8%.
than expected consumption [lead]
• Global usage of refined zinc metal increased by 4.6% mainly
due to increased demand in China (12.3%) and Europe (8.3%)
So, lower supply has been partially offset by weaker than expected
that more than balanced a fall in the United States (-9%).
consumption, leading NCM to forecast a 60,000 tonne average
• Chinese net imports of zinc contained in zinc concentrates
deficit for 2007. For 2008, NCM envisages a modest surplus. A price
more than tripled to a record 445kt.
of over US$3,000/tonne should be ultimately unsustainable and we
ILZSG preliminary data, August 2007.
predict an average lead cash price of US$2,400/tonne for 2007, and
an average cash price of US$1,900/tonne in 2008.
towards the end of the year. Other
problems in Australian concentrate pro- Zinc
duction have included strike action and In the short-term, there is potential for a rally in zinc prices, led by
heavy rains in Queensland, which the continuing fall in LME inventories. Despite stocks falling below
brought Kagara Zinc’s Mt Farnet and 70,000 tonnes, prices averaged US$3,603/tonne in June, down from
Thalanga mine output down by 25%. US$3,830/tonne in May. July saw a rebound, leading to an average
However, China – which with price for that month of US$3,547/tonne. These low prices are a
Australia produces 55% of the world’s result of the market focus on the build-up in zinc production, espe-
lead concentrate – is responsible for cially at the concentrate stage.
the bulk of the 2.8% year-on-year Indeed, with a sharp rise in global mine production expected dur-
global production increase seen in the ing the remainder of the year, together with an increase in Chinese
TABLE 1: BASE METAL FORECASTS
exports of refined zinc, we would expect any such rally to be tempo-
rary. For 2007, NCM predict an average price of US$3,500/tonne,
US$/tonne 2006 2008
falling to US$2,900 in 2008 as the market moves into a 125,000
High Low
tonne surplus.
Al 2,567 3,000 1,750
Cu 6,731 7,500 5,500
Nickel
Up to April, nickel demand was strong, with demand showing sub-
Ni 24,827 33,000 20,000
stantial growth in China, the rest of Asia, and Europe. However, with
Pb 1,288 2,850 1,500
stainless steel market demand having fallen, a price correction from
Sn 8,763 15,000 10,000
the inflated base of US$50,000/tonne + was inevitable and, trig-
Zn
gered by the change to lending guidance from the LME, cash prices
3,273 3,780 1,950
by late July were at US$32,000/tonne.
Source: NCM
Stainless demand has fallen away for several reasons. Firstly, the
first five months of 2007. Furthermore, increased availability of scrap – which, if anecdotal evidence is to be
China is showing its intention to accel- accepted, will soon be used in greater amounts than the primary sup-
erate production increases, in response ply. A rise in scrap usage of 40% over the period 2003-2007 contrasts
to higher prices. Chinese concentrate significantly with 14.1%, the equivalent figure for primary usage. The
output was up 22.2% year-on-year in second factor affecting nickel demand are the cuts in stainless steel
May, and refined output by June had production, which, combined with a decline in the austenitic to ferrit-
increased by 11.1% year-on-year to ic ratio – the former type of stainless steel uses nickel, the latter an
239,000 tonnes.
Nevertheless, high Chinese domestic
TABLE 2: BASE METAL PRICE OUTLOOK, US$/TONNE
demand coupled with relatively flat Cash Price % Change
production earlier in the year has led to 2005 2006 2007 2008 07/06 08/07
a sharp fall in Chinese exports of the
Al 1,898 2,567 2,750 2,300 7.1% -16.4%
refined metal. The year-on-year figures
Cu 3,684 6,731 6,750 5,750 0.3% -14.8%
for May were down 21.9%, and the
Ni 14,733 24,287 37,000 27,500 52.3% -25.7%
government has since imposed an
export duty, which will lead to a further
Pb 976 1,288 1,925 1,600 49.5% -16.9%
reduction in exports over the summer.
Sn 7,370 8,763 13,750 11,000 56.9% -20.0%
Meanwhile, Western world refined
Zn 1,385 3,273 3,500 2,750 6.9% -21.4%
output expectation has also been
Source: NCM
66 SEPTEMBER 2007 COMMODITIES NOW
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