Metals prices have completed the sixth year of a bull-pricing phase that started in 2002. Since the end of 2001, a market basket of six basic nonferrous metals has increased in a supercycle pricing surge of 338%. In the same timeframe, commodity steel prices have been more erratic and have increased by 113%.

The outlook for these key nonferrous metals prices is a 15–17% slide during 2008 but there won't be a collapse. In fact, there's a chance of a 6–8% increase in steel but it won't be a spike. The market mavens suggest metals prices will remain elevated through winter as buyers restock depleted inventories. Then, in the summer, purchasing and prices will slide—and stay erratic for awhile.

Analyst William Adams at BaseMetals.com in London says "the credit crunch and the sub-prime credit issues in the U.S. will lead to more economic distress in 2008 and that this will eventually lead to slower economic growth globally." Economist Gary Mead at Fortis Bank in London adds "the key automotive sector in the U.S. is shaping up for 2008 to represent its worst year in a decade for new car sales. So, slowing U.S. industrial output is bad news for base metals demand globally."

In the short term, they and other analysts believe ongoing strong global demand and a weakened dollar will boost consumption of nonferrous metals, keep offshore supplies out of North America, lengthen leadtimes and support somewhat higher pricing. But, by midyear, as demand continues to slide toward near-recession levels, they believe metals buyers will see supply improve and prices slide.

There won't be a price crash, though, says economist Matt Robinson at the Moody's Economy.com office in Sydney, Australia, because "metals commodities in general will continue to attract an increasing amount of speculative investment. This will prolong demand-side support for commodity prices in the months ahead."

Major steel producers have announced price rises for some of their basic mill products, reflecting higher costs, but a slowing global economy could make it difficult to push through these increases, according to analysts. They point to depressed demand for steel mill products due to reduced assembly this year of cars, trucks, major appliances, consumer durable goods and various types of equipment and machinery.

The International Iron and Steel Institute projects that higher demand in Brazil, Russia, India and China will drive global steel consumption up 6.8% in 2008. The revised IISI outlook sees world steel consumption reaching 1.41 billion net tons in 2008, up from 1.32 billion tons last year, also a rise of 6.8%. But, in the U.S., demand is expected to drop for the second straight year, says Deborah Allen Hewitt, president of Rutledge Research in Williamsburg, Va. She projects a 5% slide in U.S. use this year to 96 million net tons—following an adjusted 9% dip in 2007 to 101 million tons.

The surprise of 2007 was the exceptional strength and 5% growth in global demand for copper despite weak purchasing in the U.S. The average world price of $3.25/lb through November was an increase from $3.06 in 2006. A surge in purchasing by China kept the world market in deficit. Analysts see another deficit in 2008. So, even as economists see the global market moving into oversupply, they also foresee prices elevated. The latest consensus forecast puts the London Metal Exchange (LME) price average for 2008 at $3.14/lb.

Analysts are anticipating that last year's global surplus of primary metal of 300,000 metric tons will increase further this year mostly because of a sustained decline in purchasing in the U.S. World aluminum consumption in 2007 rose by 11% to 41.12 million net tons after rising 7% in 2006. That's what has kept LME ingot priced at $1.16/lb in 2006 and $1.21 in 2007. In the U.S., demand dropped 4% to 7.17 million tons last year. In 2008, world aluminum consumption is forecast to increase by almost 7% to 44.3 million tons because of sustained strong demand growth from Europe and China. U.S. use, on the other hand, will slide by 4% again because of soft housing, automotive and consumer durables markets. The mavens' consensus forecast shows ingot slipping back to $1.16/lb.

Average annual transaction prices for a market basket of carbon steel mill products have increased by 90% since 2003. That increase, in effect, creates a new pricing baseline of $675/ton for the 11 mill products, as compared with $375 for some years earlier. Last year, the market basket cost about $690/ton and the mills—betting on a metalworking rebound—are seeking to boost that past $750. Producers insist demand will improve soon because inventories at the service centers are at re-order levels. However, end users are looking at a slow-manufacturing year that will reduce OEM and distributor purchasing by at least 5%. Also, capacity additions across the globe could cause expanded imports if the dollar strengthens. Upshot: Prices will rise briskly in the first half, then flatten out and possibly slide in the second half.

International Lead and Zinc Study Group expects a swing into surplus for global refined zinc in 2008 of some 276,000 net tons. That's because world refined zinc production increased 6% to 7.1 million tons last year as new production facilities came on-stream. Production should increase by another 5.5% this year to just under 7.5 million tons. Yet, world demand is softening from steelmakers who use zinc to coat steel and copper-metals mills that use zinc to make brass. Analysts say purchasing patterns are mixed; expected sustained growth in China and in the rest of Asia-Pacific but anticipated continued declines in buys in Europe and the U.S. Predictably, zinc prices are coming under strong downward pressure and analysts see slippage in 2008 to $1.25/lb from $1.41 in 2007.

Prices have been very volatile because concerns about supply generated a 105% increase to an average $1.17/lb on the LME from 57¢ in 2006. Consumption increased by 4% last year but that was barely matched by a 4% growth in supply so that second-half mining and smelting problems in Western Australia and reduced exports by China created a global deficit of 130,000 net tons. This year, a slowing global economy and fewer new cars sold in the U.S., Canada and the European Union should negatively impact lead demand and offset possible continued tight supply. The consensus lead price forecast is 99¢/lb this year, though, because the world's biggest refined lead producer, China, will continue to reduce exports due to its imposition of a 10% export tax.

Analysts admit that none of them saw the 2006–2007 nickel price juggernaut coming, making forecasts of this year's price direction all the more difficult. After averaging just under $7/lb in 2005, nickel prices jumped to near $11 in 2006 and more than $17 last year. World production of stainless steel reached 32 million net tons in 2007. Most speculators invested in nickel in the belief that Chinese demand would mitigate the U.S. slowdown in stainless steel production. But, stainless production cuts are expected in 2008 in Asia, including China, plus North America and Europe due to OEM cutbacks and product substitution. This will dent demand for nickel and generate a surplus around 110,000 net tons. The consensus forecast is for LME spot nickel to average slightly under $14/lb.

Stainless steel purchasing dropped by 11% last year in the face of a 50% increase in transaction prices for all grades. All stainless sheet and plate market prices have exploded by 200% over the past five years. Cold-rolled stainless steel sheet alone increased 75% last year, caused in large part by the surcharges attached by the mills to defray costs of nickel, chrome and molybdenum. The per-ton flat-rolled surcharge ranged from $2,540 to $4,450 last year. Upshot: Demand for commodity grades of stainless steels has dropped from reduced metalworking activity and materials substitution. Analysts think purchasing should start to show some improvement as winter progresses but no dramatic pickup in demand is likely—even if prices do slip slightly to reflect a 21.5% drop in nickel costs.

An expected slide in U.S. tin use this year will push prices down to $6.28/lb from $6.51 in 2007 even if there is restrained supply of the plating metal from Indonesia, a major source, and China. Analysts also are no longer convinced the world steelmakers who make tinplated steel for cans will boost demand this year for the plating and coating metal. So, instead of earlier views that tin would rise to $7/lb this year, the mavens now forecast a 3.5% tin price decline—since they expect the global market to stay in relative supply/demand balance. Still, prices should stay at high levels because mavens don't expect the government of Indonesia to let prices fall too far before it holds back on supply. Other analysts also say investors will continue the speculative activity that boosts spot pricing.


Base metals prices are expected to slip slightly in 2008, ¢/lb