Analysts continue to revise 2009 nonferrous price forecasts; steel and scrap aren’t so strong either

Copper and aluminum set new 2008 lows this week, falling back to levels not seen since July 2005–feeling the effects of a slower economy in general and more grim news concerning housing starts for October at a record low. Upshot: December Comex copper fell 6.05¢ to $1.6015/lb and closed at $1.5755 on Thursday. If these two leading metals continue to fall, then sentiment may well drag the other metals lower too.

Those that do forecast metal prices have had to rethink earlier assumptions and, consequently, all have lowered their respective expectations for global economic growth this year and next and, hence, have subsequently lowered their price outlooks for 2009 and 2010.

This week, Macquarie Bank analysts have made what they termed “drastic” changes to their 2009 forecasts for base metals. Here’s a summary of their forecasts for this year and next for the London Metal Exchange (LME) cash price:

Commodity 2008     2009      2010
Aluminum    $1.20   $0.90    $0.95
Copper        $3.19   $1.70    $2.00
Lead            $0.97    $0.60    $0.75
Zinc $           $0.85    $0.51    $0.70
Nickel           $9.60    $5.00     $6.38

Speaking yesterday at an ISRI member-only conference call that focused on the near term outlook for key LME-traded base metals, Edward Meir of MF Global, offered a ray of optimism for the LME complex as opposed to a “gloom and doom” scenario that seems to be dominating today’s market psychology. Still, Meir characterized 2009 as a “slow to flat year” at best before the main markets show concrete signs of economic recovery. The bottom for base metals, he concluded, will be defined by their respective costs of production, and it some cases, prices have already reached that level.

Looking first at copper, Meir placed the 2009 trading range at $1.36 - $2.15/lb with an average next year placed at $1.73. By 2010, he’s looking at an LME cash average of $1.95. Aluminum was forecast to average $0.91/lb in 2009 and $1.06 in 2010 as the global aluminum industry struggles with large LME and Chinese above-ground inventories of primary metal. With production costs estimated at $1.03 per pound, Meir maintained that fully one-third of the smelters are losing money in today’s market environment.

Nickel is also facing losses based on production costs that were figured at 10,000 – 15,000/mt along with a global market that’s expected to show surpluses this year and next. Next year’s LME nickel average was figured at $11,000/mt with 2010 averaging $14,000. Zinc, Meir concluded, looked the weakest of the lot with approximately 50% - 63% of the world’s zinc producers currently losing money in today’s market. Meir is forecasting an average zinc price of $0.50/lb for 2009 and $.059 for 2010.

Ferrous also is weaker
The latest from the World Steel Association shows that global steel production was lower
by some 12.4% year-on-year in October; through the first 10 months, crude output was 1.136 billion metric tons, up 2.17%. Given the enormous cut backs we’re seeing, however, this year’s total will be much lower than the annualized production rate of around 1.36 billion metric tons. Michelle Applebaum Research reckons that the
global steel industry in operating at some 70% of production en route to a level closer to 60-65% by yearend. Domestic blast furnaces, meanwhile, are assumed to be running closer to 50% capacity, the lowest since February 1983. Nucor reckons that the number could be closer to two thirds by year-end. U.S. production through the first 10 months was 83.0 million metric tons, up 1.8% over comparable 2007 data.

Latest price indicators have hot-rolled sheet in coil ranging from $615/short ton to $738/short ton, f.o.b. Midwest mill. For the first 10 months of this year, HR has averaged $886, according to Purchasing magazine.

Looking a bit ahead, and after going back to the drawing board (again,) Goldman Sachs is now forecasting HR coil to average $855 for this year and $560 for all of 2009 along with an 8% decline in U.S. apparent demand for steel.

As for ferrous scrap, some place the current Midwest market for shredded scrap is $185/gross ton, delivered. According to Platts, shredded material is showing upward movement (+$55) while others have expressed doubt whether this latest indicator will hold. Others, however, are noting that deals have been done for shredded scrap deliveries ranging from $180 - $225. And still other sources are also reporting an uptick in bushelings (at $220, delivered) and No.1 heavy melting scrap or HMS (at $130 - $200). Prices are all over the lot, but the volumes, we understand from our contacts, are not there to sustain what we’re seeing this week. So, this week’s Scrap Price Bulletin has prices considerably below what is currently circulating in the trenches. Also, the RMDAS November No.1 HMS regional indicator was placed at $119 per ton.

As for the near term, our friends at Morgan Stanley are looking at shredded scrap averaging $228/tonnext year, down some 44% from their estimate for this year ($410). They’re also not anticipating “the spring price surge we have seen in recent years.” Year-to-date, we estimate that delivered shredded scrap to mills has averaged around $440/gross ton.