Following Industrial Metal Commodity Prices, Future Growth TrendsCommodity prices in general have been very strong in the first half of this decade and the base metals are no exception to this general trend in natural resources prices. It is widely recognised that the huge economic expansion in the rapidly emerging economies of China and India has played a significant part in strengthening industrial metal commodity prices.
You can now subscribe to the free Commodity Universe Ezine below, and get the latest articles on the commodity sector . Just your first name and email. It's as easy as 1-2-3! Metal prices will be determined by the demand and supply dynamics, as with any other commodity. So what are the factors to consider here? Demand According to a recent report by Rio Tinto, the Anglo Australian miner, rapid urbanisation is driving steel consumption growth rates to be higher than the country GDP growth rate in the economic development phase.
The company estimates such rates of urban expansion will double demand for the commodity producer’s products over the next 15 years or so. Rio sees a doubling of demand for its iron ore from 844 Mt in 2007 to 1624 Mt in 2022. Likewise, demand for copper and primary aluminium, its two other major products, is projected to double to 38 Mt and 66 Mt respectively by 2022.
Factors affecting the supply of industrial metals include:
Going forward the factors likely to dominate are strong markets and sustainable high industrial metal commodity prices, where annual growth rates for metals and mining (5.2%) will be higher than real GDP growth (4.2%) up to 2015, according to the Rio Tinto Value and Growth Seminar. More generally, there will always be a lead time between a decision to open a new mine and when that location actually starts producing metal to be exported.
When inventory stockpiles start falling inevitably metal prices on the main markets, the London Metal Exchange (LME), the COMEX division of NYMEX and the Shanghai Futures Exchange (SHFE), will rise to reflect the supply demand imbalance. Conversely, if there is a global slowdown and stocks are not drawn down from the warehouses, then metal prices are likely to weaken. Copper Look how the copper price has increased by 407% from $1762 per Mt in 2003 to its all time high of $8,940 per Mt at the end of June 2008.
The metal is used in computers for integrated circuits, and as part of the chip as an alternative to aluminium. Its excellent conductivity makes it an important component in wiring, which is in high demand because of infrastructure expansion.
Nickel A very important component in stainless steel, so when Chinese production in stainless steel surged so did the demand for nickel. China’s own nickel reserves are not enough to cope with its demand so there is a growing need to import the metal. LME Nickel ended 2007 around $26,350 per Mt, and in July 2008 it was trading around $20,640 per Mt (a fall of 22% in 6 months). Aluminium This metal has a wide range of uses, from packaging to drink cans, foil wrapping, and because of its excellent strength to weight ratio, a wide application in transportation. Buildings using aluminium benefit from its corrosion resistance and lightness, for example in window frames. Over the 5 years to July 2008, the LME primary aluminium spot price has increased from $1,322 per Mt to $3,210 per Mt, an increase of 143%. Yet its record high was in May 2006 at $3,310, and it has increased over 33% since the end of 2007 to early July 2008.
China accounts for about 30% of total global consumption of zinc, with the US in second place. It is very important in galvanising steel and protecting that metal from corrosion. So it is clear that while the emerging economies continue to demand high volumes of iron ore for infrastructure expansion, zinc will be needed for protecting steel. Zinc rose from a low of $750 per Mt in early 2003 to a record high of $4,580 per Mt in May 2006, when warehouse stock levels were very low. For the six months to end June 2008 LME zinc has fallen from 2,370 per Mt to 1,786 per Mt (-25%). Growing Global Economy, Metals challenge Looking forward we can see that prices are more likely to remain high as there is still insufficient investment in new mining projects, which take time to come on stream. There may be periods when inventories build up at a faster rate, for example, due to a slowdown in the US, and so prices will weaken. But the continuing strong demand from China and India in particular will mean the longer term scene is set for strong industrial metal commodity prices.
|
