Purchasing

Robert J. (Bob) Garino

Some post-vacation thoughts on nonferrous metals
August 24, 2007

Nonferrous metals have, indeed, wilted in the summertime heat.

At midweek, traders were breathing a little easier though, helped in part by the fact that China is still buying vast quantities of copper and other metals, despite some analysts insisting that the major market do not believe that the Fed cutting its discount rate by 0.05% alone is sufficient to restore confidence…others, however, note that this so-called “credit crunch” is not materially affecting raw materials demand, so there you go…meanwhile, Chinese refined copper imports in July were up almost 70% month-on-month at 98,489 metric tons.

This morning (Friday) the London Metals Exchange is softer with less confident market participants again talking about a more cautious attitude towards risk in the financial arena…consequently, metals were mostly lower early–lead being the exception, overtaking zinc, in fact (we haven’t seen that since 1980!)…

London gold was also unsettled, trading at $659.70/$660.30 and behaving much like other assets as opposed to its more traditional role as a “safe haven” in times of financial worry…Wall Street activity will be closely watched…

Other Metal News…

As of last Friday, Southern Copper’s workers (Peru) still had not reached an accord with management about wages….sources noted that they will probably decide next week if and when they will launch a strike…this came in addition to the strike at Grupo Mexico’s large Cananea copper mine in northern Mexico, now in its third week…

LME warehouse stocks for lead have fallen to levels last seen in March of 1990 -- 26,675 metric tons, or just over one day of global consumption…copper, on the other hand, hovering at around 122,500 metric tons is at about two days of global consumption…

Dealers have noted the stainless steel mills have begun restocking and that should support the LME and 18/8 scrap prices, but not all are convinced…some remain on record saying that 3-month nickel prices are expected to remain weak in the 3rd quarter, and recover a little in the 4th…

Zinc has been steadily rising, up again, this time $70 to $3,065/metric ton ($1.39/lb) from Tuesday’s close…analysts note, however, that the global zinc market is in surplus of some 31,000 metric tons from January to June 2007…

What I’ve written

Here’s an early look at the next “Marketrends” column in Scrap magazine that’s due out next month…

Aluminum: Global aluminum market conditions remained relatively stable as the third quarter got underway. More-than-adequate primary metal supply matched against positive demand characterized the fundamental picture. Even though global aluminum stocks have declined over the January-to-July period, analysts expect production increases in the second half of 2007 to minimize the statistical shortfall forecast for the full year. LME prices continued to trade within a narrow band, though weakness surfaced in August as position-holders reassessed their risk as domestic and global credit worries mounted.

Copper: The copper market experienced volatility and consolidation midway through the third quarter. Ongoing labor-related supply issues offered fresh price support at the same time that other domestic and global macroeconomic issues have called into question the viability of several commodity-based hedge funds, thus prompting widespread selling in commodities and equities. Though the near-term outlook for copper is unsettled, the metal’s supply/demand picture suggests price recovery in the months ahead despite a global market that’s trending toward surplus and exacerbated by recent fund redemptions.

Lead: For the global lead market, supply remains the dominant feature in 2007, resulting in record-setting prices on the LME in the third quarter. Experts predict that concentrate shortages will remain an ongoing feature in the lead market, with little in the way of new mine supply to counter this trend. Expectations are for lead consumption to remain little changed in the West, but Chinese demand should remain robust due to demand for new and replacement automotive batteries. Independent analysts believe this structural

tightness in primary supply will not be corrected anytime soon, leading them to upgrade price forecasts for 2007 and 2008.

Nickel: Since midyear, nickel market dynamics have done an about-face. In early August, LME prices were languishing at 10-month lows--nearly 40% lower than May’s record highs. Analysts expect nickel’s apparent price correction to run its course at least through the balance of the third quarter. Market participants point to stainless steel destocking, soft order books, product substitution, and increased nickel units from iron ore as offsetting other global supply concerns. Despite the changing fundamentals, global aboveground stocks remain relatively modest, thus price volatility, characteristic of this market, remains an ongoing issue for buyers and sellers of primary nickel and stainless steel and scrap.

Zinc: Midway through the third quarter, the zinc market seems to be marking time and drifting lower as it seeks fresh direction. In contrast to lead, which will most likely record a supply shortfall this year, zinc fundamentals point to a refined-metal surplus for 2007 and an even larger statistical surplus in 2008 and beyond. At the same time, however, stocks as measured on the LME have trended lower year-to-date, offering modest near-term price support. Even so, as the year progresses, analysts expect the perceived tightness to ease, hinting at the potential for downward price pressure in the fourth quarter and into 2008.

Finally, this week’s quote: “A banker is a fellow who lends you his umbrella when the sun is shining, but wants it back the minute it begins to rain.” -- Mark Twain        

Posted by Robert J. (Bob) Garino on August 24, 2007 | Comments (2)