Nonferrous

The first quarter of 2009 seems like a continuation of the last quarter of 2008 for many nonferrous metals: more pain, limited visibility, softening prices, slashing demand.

Aluminum, copper, zinc, nickel and a number of other nonferrous metals continue to show stress. While there doesn’t seem to be much in the way of a market recovery as of yet, some steps are being taken that could help stem the slide in markets for some of these nonferrous metals.

For aluminum, the market has moved from challenging to grim. The automotive and housing sectors, two large consumers of aluminum, are showing some of the biggest problems within the U.S. and global economies. With most automobile manufacturers showing significant declines in auto sales, aluminum demand continues to erode.

In response to lower demand, many of the top aluminum companies are slashing their production. According to one report, since August 2008, a total of nearly 4.5 million tons of aluminum capacity has been taken off the market. It is likely that additional aluminum production capacity will be removed throughout the first half of this year.

In two of the more high-profile announcements, Alcoa, which has already announced production cuts during the last quarter of 2008, will be further reducing smelter output by more than 135,000 metric tons. This will bring the total primary aluminum production cuts to 750,000 metric tons per year, about 18 percent of the company’s total output. Alcoa is expected to make these cuts by the end of the first quarter of 2009.

Another company, Century Aluminum, has been contemplating closing its West Virginia aluminum smelter.

While the above news has been negative, some positive signs also can be seen. According to reports, Chinese government agencies are stepping into the market to make some strategic purchases, which they hope will sop up excess inventory. One report states that China’s State Reserve Bureau is planning to purchase 300,000 metric tons of aluminum at a 10 percent premium to the market price.

Copper markets are less than stellar as the run-up in pricing and demand through the past several years is now officially over. After prices declined quite sharply throughout the second half of last year (with some calling it an outright collapse), there has been a modest recovery. However, even a modest price improvement is being met with concern that any price improvement is only a technical correction, with the metal possessing little in the way of any underlying strength.

At press time signs indicate that an anticipated economic stimulus package from the incoming administration could spur substantive improvements in copper. One report notes that copper prices have rebounded in anticipation of stronger demand.

Some reports also indicate that China appears to be more active in the copper market. China was the key force driving copper markets earlier this decade, and when the country shut off the tap, it created sizable tremors throughout the market. However, if China engages in sustained buying, it could result in modest strengthening in the demand for copper.

A report by Bloomberg released in the middle of January notes that copper inventories, as reported by the Shanghai Futures Exchange, dropped sharply during the middle of the month. This could have the effect of bringing back some additional buying through the first half of the year.

However, considering pure demand, there appears to be an oversupply of copper on the market. This should work to keep a lid on any sizable price hikes and help to keep the bias to the downside for copper.