The Jefferies Commodity Research Bureau (CRB) spot index of metals touched 439.83 on 25th Feb 2009 declining from its year ago levels of 852.21, marking a fall of 48%. The decline is the resultant of the recession in major Base metals consuming sectors including Automobiles, Construction, and Manufacturing etc. Expectations are that the Base metals will start recouping by the year end but it will be a bumpy ride till that time.
Base metals market has been severely hit by the global economic meltdown. The Government and Ministries across the globe have been trying hard to support the falling prices of Base metals. Several stimulus packages and tax cuts have been announced so far, yet the real demand is still lacking. Aluminum for instance is the most widely used non-ferrous metal whose demand is driven by the automobiles Industry. Efforts from developed and developing nations have been made to revive the sector.
China which is world’s top Aluminium producer and consumer is trying hard to save the ailing Aluminium sector. The China State Reserves Bureau (SRB) recently announced buying of 290000 tonnes Aluminium from local smelters. The Chinese government has plans to purchase a total of 1 million tonnes by June 2009. China is also planning to impose a 5 percent tax on the imports of Aluminium. On the contrary, the Government of India in order to save its sagging industry announced the third stimulus package in less then three months. The indirect taxes were cut across various sectors. The move included a cut on excise duty of Steel and Auto sector from 10% to 8%. This will help companies to reduce their costs of manufacturing and end users will be benefited.
The prices of Aluminium have plummeted by 13% since January 2009 this is after a fall of 38% in 2008. But the measures to stabilize the prices so far have proved unfruitful. This is the resultant of rise in stockpiles of Aluminium which have registered gains of 36% during the same period. Interesting to note is that this is following a rise of 151% in inventories in 2008. The rise in stockpiles of Aluminium has been due to the decline in vehicle sales in US, Euro zone and other developed and developing markets. In US the sales for cars for the month of January 2009 were down 36% to 315863 vehicles from corresponding period in 2008. European Car sales data on the contrary registered a fall of 27 percent in January marking a lowest level in 20 years.
Compared to Aluminium Copper has been much better off in 2009. The prices have maintained some momentum upwards rather then falling. LME three month Copper prices have gone up by 8% since January to $ 3389 per tonne. The rise has been mostly news driven and pessimistic views for the economy in the coming future. Impact of Chinese government buying from smelters and stimulus packages helped the prices to maintain the range.
China's State Council announced on 25th Feb 2009 its support plans for the nonferrous metals and logistics sectors to stimulate the economy. China has so far unveiled stimulus packages for 10 industries since January 2009. The consumption of Copper however has not shown any positive signs of recovery. This doesn’t mean that the efforts by the government have failed. It is only that the time frame of these measures to take affect is long. Therefore short spikes in Copper or other metals cannot be termed as trend reversal.
The latest report released by the International Copper Study Group indicated that the refined Copper for the first 11 months registered a surplus of 147000 tonnes. China experienced strong growth of 12.6% in the usage of refined Copper for the first 11 months of 2008. The usage remained depressed in the EU-15 countries, Japan, and the United States, where it decreased by 4.4%, 3.6%, and 7%, respectively. The world refined copper output between January and November 2008 reached 16.895 million tonnes, while consumption totaled 16.748 million tonnes, up year-on-year by 2.5% respectively.
The tendency of falling demand was also witnessed in Nickel. Nickel is mostly used in producing Austenitic steel grades commonly known as 300 series steel. The demand is therefore driven from the Steel industry. According to the data on supply and demand of nickel in 2008 released in October 2008 by International Nickel Study Group (INSG), nickel production totaled 1410000 in 2008 as against 1430000 tonnes in 2007 and nickel consumption totaled 1380000 tonnes as against 1310000 tonnes in 2007. INSG also mentioned the supply and demand of nickel in 2009 and estimated to be nickel production at 1550000 tonnes and nickel consumption at 1440000 tonnes.
Nickel prices reached a high of $ 13450 per ton on LME during the start of January (6th Jan 2009) on account of global rebalancing but since then it has been murky days for the prices with Nickel at $ 9825 per ton on 25th Feb 2009, a fall of 27%. Global nickel prices will weaken further unless more output cuts are made to offset falling demand and prevent the market from recording a supply surplus for the third consecutive year. Inventories of Nickel in LME warehouses are at their highest in almost 14 years.
The Base metal which has seen sharp cuts in production in 2008 and current year is Zinc. Zinc has faced severe cuts on lack of demand from Europe, US and Japan has caused Zinc to remain gasping. In November global zinc mine output declined for the fifth month in succession as per latest International Lead and Zinc Study Group (ILZSG) data. The profits of domestic players have also been impacted due to the continued depression in zinc prices. Hindustan Zinc (HZL) which is on track to become the world's largest integrated producer of zinc-lead recently announced that the profits are adversely impacted by decline in Zinc prices.
In order to provide assistance to its local smelters China SRB has bought 100000 tons of Zinc on 25th Feb 2009. The SRB, which builds and manages commodity reserves for the government, is expected to buy another 100,000 tonnes in April or May. The move is expected to boost domestic prices in the short run but make only a small dent on the global glut of the metal. Zinc is still looking at a surplus of around 200000 to 300000 tonnes in 2009. LME Zinc prices have crashed by 10% during 2009 to $ 1123 per tonne.
Writer's Views:
The first half of 2008 was a boom in commodities cycle, since then it has been a depression in the metals prices. Most of the metals like Aluminium, Nickel, Zinc etc have registered declines in this year. The cushion has been provided by the government’s however the benefits will be seen in the revival of housing data’s, car sales markets, falling inventory levels and shrinkage of the gap between production and usage. The interest rates have been cut across the globe and similar trend is expected to continue in the coming months. Lending institutions are now slowly but surely injecting the liquidity in the system. But the process is expected to show results from the second quarter of 2009. The prices of base metals are also expected to bottom out during the same period.
