Moving into the fall it appears that most nonferrous metals are in a tentative balance.
Moving into the fall it appears that most nonferrous metals are in a tentative balance. Nonferrous markets may be finding some stable pricing after the sharp corrections earlier this year. Even with prices finding decent footing, there continue to be conflicting reports on the relative strength of copper, aluminium, nickel and several other nonferrous metals.
Despite the recent lull in prices, most traders expect to see a pickup in volatility through the rest of the year as the global economy struggles to emerge from an extended slump.
At the end of August there are reports of a decline in generation, which may be one reason for some price stabilization. A key reason for the decline, several sources note, is that many Europeans are on holiday, which ultimately results in a drop in generation. Even with the return to business in the fall, however, there are only minimal signs of an overall improvement coming soon.
Traders also are in a holding pattern for nonferrous metals at the end of August as central bankers are meeting to discuss monetary policy steps. Another economic issue that is keeping nonferrous markets somewhat muted is the European Central Bank meeting, scheduled for the first week of September, and steps the ECB will take to shore up European economies.
For copper, markets will be dictated by the ability of China to stem its slowdown. Over the past several quarters there have been widespread reports that China’s economy is slowing down at a rate far faster than earlier anticipated. The question now being bandied about is how severe and how long the turndown in the Chinese economy will be.
Adding fuel to this concern is a recent article by Dow Jones that notes China’s Ministry of Industry and Information Technology met with a number of associations representing a range of industries, including producers of nonferrous metals. At the meeting the government agency reported that debt levels for many of these industries have been climbing, and delays in payment or even defaults are starting to take place.
The uncertainty over the Chinese economy is playing a heavy role in the direction of the European market. With so much copper scrap generated in Europe (as well as the United States) traditionally being shipped to China, a reduction in the demand will back up markets in generating countries.
Echoing the cautious short-term outlook being expressed for copper, the Germany-based copper producer Aurubis, in a market analysis, says that the forecast for copper through the rest of 2012 is fairly murky. “This was affected by technical disruptions, maintenance standstills and strikes. This will barely change in the foreseeable future.” The company claims that it is the largest copper recycler in the world.
“On the demand side, attention is focused on the unclear trend in China, in addition to the trend in the weak European markets,” the Aurubis report continues. “After the Chinese government’s latest measures to stimulate economic growth, market observers assume that copper demand may be revived there in the second half of calendar year 2012. Since the country accounts for 40% of global copper demand, this should further support the copper price. The price trend will remain volatile, however.”
Other metals also are seeing some downward pressure in the near term. At the end of August, tin markets dropped sharply as Indonesia’s PT Timah, the largest tin miner in the world’s biggest refined tin exporting country, restarted its operations, stopping a rally in the tin market driven by shortages of the metal. Prior to the start, prices had been climbing, as more than 90% of Indonesian tin miners had stopped production.
A report by Bloomberg notes that Indonesia has idled about 70% of tin smelting capacity in its biggest producing region amid a three-month bear market, curbing the world’s biggest exports and setting the stage for a global shortage. According to the Indonesian Tin Mining Association, about 24 of 28 smelters in a key tin mining region have closed down. The result is that demand will exceed supply by 7,000 tonnes next year, equal to about 60% of global stockpiles tracked by the London Metal Exchange.
Aluminium markets also are in a bit of a challenging environment. Downtime continues to sweep the industry, with wholesale shutdowns in China adding to the overall malaise in the market for the metal.
Adding to the difficulties, Rusal, a Russia-based aluminium producer, has announced plans to sharply reduce its aluminium production over the next five years, with 275,000 tonnes of primary aluminium production expected to be eliminated by 2018. The capacity reduction is expected to start this year and run through 2015.
Aluminium availability has been falling in the last few months as lower prices against rising costs forced some major producers to cut their output. What is taking place, though, are some of the largest producers taking the draconian decision to either shutter or sell off assets to remove excess capacity from the market.