Global economic growth has kept nonferrous prices elevated

This week’s survey by the National Association for Business Economics offered a less than stellar outlook for the balance of this year, with most economists figuring that the U.S. economy will, at best, mark time at below trend growth in gross domestic product (GDP). As observed by Ken Simonson, chief economist with the Associated General Contractors of America, “Most forecasters are suggesting the outlook will be sluggish, but not desperate.”

Offering a slightly more upbeat picture for the domestic and global economies, the International Monetary Fund (IMF) raised its global economic forecast for this year and 2009 because, it said, the effects of the credit crisis were not as bad as expected…so, last week’s revised estimates now expect the world economy to grow by 4.1% this year, up from 3.7%.

The U.S. economy, meanwhile, will expand by 1.3% this year, said the IMF, and not the 0.5% it estimated earlier. (Later this month, the government will release initial estimates of real economic activity in the second quarter.) The U.S. is pegged at 0.8% growth for 2009 since the IMF also warned that inflation is mounting in both advanced and emerging economies, despite the global slowdown. In many countries, the driving force behind higher inflation is higher food and fuel prices.

Meanwhile, on the domestic housing front, sales of existing homes for June fell more than expected to a seasonally adjusted annual rate of 4.86 million units and sales are 15.5% below where they were a year ago. In addition, the median price for a home sold in June dropped to $215,100, down by 6.1% from a year ago. That was the fifth-largest year-over-year price drop on record. Finally, the drop in sales pushed inventories of unsold single-family homes and condominiums to 4.49 million units, representing an 11.1-month supply, the second highest level in the past 24 years.

Looking at the ferrous market, at mid-year, the International Iron and Steel Institute (IISI) is reporting global crude steel output at 696 million metric tons, up 5.7% over comparable 2007 data and easily en route to another record production year. China’s production was placed at 263.2 million metric tons through June, up 9.6%, and currently representing 38% of the global supply. A forecast offered by the China Iron & Steel Assn placed the year’s production at 540 million metric tons. The U.S. production, meanwhile, was figured at 50.8 million metric tons through June, up 4.7%.

Market participants awaited the latest from Nucor regarding their announced September spot price for hot-rolled steel in coil (HRC) deliveries. We understand their new base price will be $1,160/ton , up $40…as we reported last week, published Midwest f.o.b. prices are below Nucor’s August price of $1,120/ ton with the guess that for the majority of domestic steel producers, September’s HRC would fall in a range of $1,100 - $1,120.

(Editor’s Note: Purchasing.com this week posted a July transaction price for hot-rolled steel sheet in the Midwest at $1,068/ton, up just 1% from June, and questioned the ability of the mills to boost prices by $92 in a comatose marketplace.).

Still, on the scrap front, the reference price from Platts Steel Markets Daily for shredded scrap for July was figured at $600/gross ton, delivered, Midwest. Their sources are looking at August as a flat to sideways market with little support expected from exports. As reported for July, the RMDAS Ferrous Scrap Price Index has shredded scrap at $596 as a national average while its No.1 heavy melted scrap was reported at $516 per ton. This week’s Iron Age is reporting Chicago shreds at $592-$593, delivered. They are also showing Brazilian pig iron @ $925-$930/metric ton NOLA…Steel Business Briefing.com (SBB) reckons, however, that Brazilian pig iron prices have, for now, eased with current f.o.b. quotes placed at $800/metric ton.

So, is all this just a summer lull? So it would seem, and a few have stated just that. Our friends at Canaccord Adams, for example, have concluded that “ferrous scrap prices are likely to strengthen in the fall as demand picks up and supplies of material remain generally tight.”

As for nonferrous metals, compared with Reuters’ January 2008 poll, prices for nickel, zinc and lead now are forecast to be lower for the full year, while copper, aluminum and tin are now higher compared with the January survey. Here are some nonferrous fundamentals to confirm or deny what some are thinking about prices:

Latest International Lead Zinc Study Group (ILZSG) data on the global supply/demand picture has refined lead production outpacing consumption through the first five months of this year. We’re seeing higher mine output from China but, interestingly, considerably less net exports to the West. After a period of rising inventories on the London Metals Exchange (LME), lead stocks have again trended lower and cancelled warrants have increased; year-to-date, however, LME stocks have doubled since end-2007.

Zinc, too, posted a statistical surplus over the Jan-May period. Inventories held in LME warehouses have increased by 62,425 metric tons, or 70% since end-2007. More recent reports from China that noted several smaller regional zinc smelters would be cutting back on production has largely been ignored by the market. The guess is that this year’s global slab zinc surplus will exceed the 200,000 ton mark with prices averaging for the full year about where LME cash zinc has averaged so far this year.

Rising stocks are also affecting aluminum; more so, it seems, than concerns that Chinese aluminum production will fall far short due to power-related issues.

And then there’s copper. The latest monthly data released by the International Copper Study Group (ICSG) showed that global copper mine supply was again lower in April – the seventh successive monthly year-on-year decline. As noted by Barclays Capital, year-to-date mine output is down, which equates to 170.3 thousand ton deficit so far this year versus the previous. To them, the picture for copper supply growth remains “bleak.” From what we can gather, however, there is no firm consensus among analysts whether copper will end this year in surplus or deficit—although based on the latest Reuters supply/demand forecast, the mid-range guess showed the global copper market came up short by some 68,000 metric tons.