2009 Price Outlook: Prices will stay high for metals
Metals prices have taken a big jump up this year and the price hikes aren't over. But, next year will be a different story.
By Tom Stundza -- Purchasing, 8/14/2008 2:00:00 AM
After erupting by 26% in 2007, prices this year for a group of metals tracked by Purchasingdata.com are on pace to increase by 16%. And, then, in 2009, buyers can expect flat or a slight 2% slippage. Market economists and purchasing executives say individual metals pricing has been and will remain unsettled—inflated for some commodity metals, deflated for others.
The base metals market is a good example: while aluminum and copper prices have risen by about 30% and tin has risen by 40% since January, nickel, zinc and lead have fallen between 20% and 40%. Carbon steel prices are exploding by 46% this year after rising just 2% last year while stainless steel prices have dropped 14% off the record highs of 2007—when prices increased by 42%. Similarly, all nonferrous production and alloying metals prices are sliding 9% this year after increasing 30% in 2007. Precious metals, conversely, look to be rising 48% in costs this year, the fifth consecutive year of double-digit inflation.
"All of us are kidding ourselves if we think there's a major formula out there to solve the high steel and base metals pricing anytime soon," says John Campi, executive vice president and chief procurement officer of global sourcing at Chrysler. In a sideline conversation during a recent auto industry meeting, Campi tells Purchasing that demand and pricing for metals is being driven by Asia: "You won't find a leverage point in North American metals markets these days to force price trends down."
Metals-market price trends, in effect, range from unpredictable to contradictory. "Metals are a group of disparate commodities markets," explains analyst Gayle Berry at Barclays Capital Research in London, "with some common themes but with differing fundamentals, vastly different past price performances and divergent price outlooks." And that, says analyst William Adams, at BaseMetals.com in London, explains the slight mid-July pullbacks in spot prices of copper, aluminum, lead and zinc. "With crude oil futures backing off recent highs, the slight easing of nonferrous metals prices isn't surprising," Adams says. "This doesn't necessarily mean the nonferrous price rally is over, but only that spot-market prices are consolidating at marginally lower numbers than earlier this year."
Here's a quick look at the key manufacturing metals:
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Steel prices are expected to average $933/ton for hot-rolled sheet this year, up from $527 in 2007, and then $948 next year. Cold-rolled sheet is projected at $1,019 this year, up form $614 in 2007, and then rise to $1,051 in 2009. Hot-dipped galvanized is projected to average $1,066 this year, up from $656 in 2007 and then average $1,061 next year.
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Aluminum primary ingot prices have risen 38% to $1.48/lb since the beginning of the year. The projected 2008 full-year price average of $1.48 will be 20% higher than the annual 2007 average of $1.23. The outlook has ingot up even more, at $1.90 in 2009. The key culprit is high energy costs and insufficient supplies of mined bauxite.
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Copper cathode prices have been boosted by production losses from technical problems, accidents and strikes in Peru, Chile, Spain, Laos, Indonesia, Mexico, China, Papua New Guinea and Japan. This has kept world supply tight. This fact, along with accelerating demand growth in Brazil, Russia, India and China and other developing nations, caused Citigroup Australia metals analysts Alan Heap and Alex Tonks to boost their 2008–2009 price forecast to $5/lb from $3.25 last year. Most analysts agree that copper concentrates are tight but see $4/lb cathode this year and slippage only to $3.75 next year.
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Supply disruptions drove lead to record high price of $1.21/lb in the U.S. market in 2007. Although economists expect the market to be somewhat better supplied this year, risks to expanded output will be high enough to keep prices around the $1.21 level. When new mine and smelter projects come on stream in 2009, though, the market price should dip to $1.07.
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Production disruptions in China in February from weather-related power outages and in May following the earthquake in Sichuan province prevented an even steeper fall in zinc prices, which have slipped to a midyear average of $1.03/lb from $1.51 as the 2007 average. With June's U.S. market price at 90¢, the analysts see $1.05 as the probable full-year average for 2008. The forecast average for 2009 also is $1.05 because the supply pipeline for zinc looks plentiful.
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Gold averaged $911/troy ounce at midyear, up 31% from $696 in 2007. Jim Rogers, a veteran commodities investor, says the precious metal's short-term future may depend on which force prevails—inflation fears by speculators or physical demand. Gold demand has fallen to five-year lows, according to the World Gold Council, as the sharp rise in prices caused consumers to spend less on electronics and jewelry. Upshot: Early forecasts put 2008 gold average at $890, sliding further to $840 next year.
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While the world's voracious appetite for carbon steel shows little sign of easing, nickel-bearing stainless steel demand (and pricing) is falling. In turn, the cost of the key ingredient, nickel, has fallen. Prices also have been weighed down into a 26% midyear freefall by still-hefty levels of London Metal Exchange (LME) nickel stockpiles. For the year, U.S. nickel will cost about $13.40/lb, down from $17.60 in 2007. The price will slide to $11.60 in 2009 if world stainless steel production continuers to disappoint forecasters.
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Indonesia, the world's second-largest tin producer, has issued regulations to reduce mining activities and lower refined tin exports in an effort to eliminate a global glut of the alloying and plating metal. What it accomplished was a 69% increase in 2007 LME price to $6.60/lb and another 40% boost at midyear 2008 to $9.16/lb. The outlook is for an average $9.25 for this year, sliding to $8.25 next year.
| forecast | ||||||||
| 2002 | 2003 | 2004 | 2005 | 2006 | 2007 | 2008 | 2009 | |
| Aluminum | 67 | 65 | 78 | 85 | 116 | 121 | 148 | 190 |
| Copper | 78 | 81 | 130 | 167 | 306 | 325 | 400 | 375 |
| Zinc | 39 | 38 | 48 | 64 | 144 | 151 | 105 | 105 |
| Lead | 23 | 23 | 40 | 57 | 60 | 117 | 121 | 107 |
| Nickel | 338 | 437 | 628 | 666 | 1064 | 1688 | 1340 | 1160 |
| Tin | 203 | 222 | 386 | 335 | 389 | 659 | 925 | 825 |
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