Purchasing

Robert J. (Bob) Garino

Nonferrous market lacks conviction up or down;insiders await definite U.S. macro indicators...
September 14, 2007

Metals traders are anticipating another nervous trading week ahead (Sept. 17-21) for commodities and equities due to the upcoming meeting of the interest rate-setting FOMC (Federal Open Market Committee of the Federal Reserve Board) and this week’s anniversary of the 9/11/01 terrorist attacks…sentiment remains fixated on U.S. credit concerns and what it may mean for the overall health of the global economy…base metal fundamentals have thus taken a temporary back seat to broader financial influences…

While some may be second guessing their earlier price forecasts as perhaps too bullish, Merrill Lynch’s latest outlook has upgraded some of their earlier longer-term guesses…although nickel, for example, has fallen far from the $23+/lb quotes recorded on the London Metal Exchange back in May, the brokerage firm sees nickel rebounding in the final months of this year following anticipated re-stocking by nickel consumers…so, ML is now forecasting that nickel prices would average $12 next year, and $11in 2009….the firm also upgraded its long-term average price forecast out to 2013 to $6.90/lb from $4.77…

Merrill Lynch also increased its 2008 outlook for aluminum by 12% to $1.18/lb and its 2009 forecast by 21% to $1.15… the 2008 copper forecast was raised by 25% to $2.50/lb and by 14% in 2009 to $2.

Back to nickel, we also note that Standard Charter Bank is looking for nickel to recover in the coming weeks…their latest forecast calls for LME cash to average $13.60 in the fourth quarter and $14.50 in the first quarter of ’08…

On the macro front:

Most of what we’re reading is about the Fed and interest rates. After last week’s dismal non-farm jobs report, the thinking now is that the Fed “is all but certain” to lower the Federal funds rates – to most, it’s just now a question of how much, and whether it’ll occur before their regularly scheduled meeting that’s set for September 18th…as the thinking goes, it seems pretty certain that what the credit markets have been experiencing since well before August has infected the wider economy, thereby leaving the Fed little choice but to inject more “easy” money into the system, thus staving off the “R” word, recession, but at the expense of the “I” word, inflation, as we look ahead…

In other news…

Nickel/Stainless Steel Roundtable of September 6, hosted by the Pittsburgh Chapter of ISRI (Institute of Scrap Recycling Industries) offered complimentary views on nickel and cobalt, along with a market perspective from an Upstate New York-based service center…

Anthony Poole of Platts Metals Week opened the program with an review of the cobalt market, starting with the mid-summer price peak of $35/lb to a more current price indication he figured was “around $29”…his contacts, he said, are currently looking forward to a more traditionally busy fourth quarter with prices ranging around $34 - $35 but with price volatility an on-going feature…

Brian Helsel of trader Phoenixx International focused his presentation on the fundamentals of cobalt supply and demand, suggesting that new supply will be challenged in keeping pace with the strong demand forecast from the chemical sector, principally from new battery power applications…

As for nickel, John Vorberger of Eramet North America discussed changing nickel market fundamentals and the “significant” influence of nickel pig iron on the global supply/demand balance. He noted that the market has shifted from a deficit position in 2006 to a more balanced position in the first half of this year, to a statistical surplus for the full year. His short term view called for a return of stainless steel buyers as inventories are worked down. He also foresees new nickel supply in 2008 and 2009 along with a slower rate of stainless steel substitution along with continued demand growth in stainless and other nickel-containing applications.

Product substitution away from the higher nickel-containing stainless steels was addressed by Poole and Vorberger and expanded upon by service center executive Jill Talve of Franklin Stainless Corp. From her company’s perspective, the shift from 304 stainless to the 200 series represents a structural change in the marketplace with mills and end-use consumers having “little reason to go back to 304.” The 200 series, she reiterated is “here to stay.” Talve also offered an encouraging near term outlook for stainless based on the anticipated return of buyers as inventories by stockists (i.e., service centers and distributors) and mills return to more normal levels.

Posted by Robert J. (Bob) Garino on September 14, 2007 | Comments (0)