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Base Metals One Year Forecast November 2009 All Metals

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1. Base Metals One Year Forecast November 2009 Date of release: 6th November 2009 © Copyright GFMS Ltd - November 2009 All rights reserved. This report serves as a…
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  • 1. Base Metals One Year Forecast November 2009 Date of release: 6th November 2009 © Copyright GFMS Ltd - November 2009 All rights reserved. This report serves as a single user licence. No part of this publication may be reproduced, stored in a retrieval system or transmitted in any form or by any means without the prior written permission of the copyright owner. This data is released for general informational purposes only, and is not for use in documents with an explicit commercial purpose such as Initial Public Offerings (IPOs), offers to conduct business, background briefings on the precious metals markets associated with marketing a particular business or business offering, or similar such documents without prior written agreement of GFMS. GFMS retains all intellectual and commercial property rights associated with the data contained herein and any unauthorised use of this data is a violation of applicable international laws and agreements. By continuing to read this document, you agree to the above terms and conditions in their entirety. Published by GFMS Limited Hedges House 153-155 Regent Street London, W1B 4JE tel: +44 (0)20 7478 1777 fax: +44 (0)20 7478 1779 email: info@gfms.co.uk web: www.gfms.co.uk
  • 2. Table of Contents Introduction I1-I3 Economic Indicators E1-E2 Aluminium A1-A7 Copper C1-C8 Lead L1-L7 Nickel & Cobalt N1-N10 Tin T1-T7 Zinc Z1-Z8 Disclaimer Whilst every effort has been made to ensure the accuracy of the information in this document, GFMS Ltd and GFMS Metals Consulting Ltd cannot guarantee such accuracy. Furthermore, the material contained herewith has no regard to the specific investment objectives, financial situation or particular needs of any specific recipient or organisation. It is published solely for informational purposes and is not to be construed as a solicitation or an offer to buy or sell any commodities, securities or related financial instruments. No representation or warranty, either express or implied, is provided in relation to the accuracy, completeness or reliability of the information contained herein. GFMS Ltd and GFMS Metals Consulting Ltd do not accept responsibility for any losses or damages arising directly, or indirectly, from the use of this document.
  • 3. Introduction - November 2009 Introduction ● Boosted by ongoing interest by investors, ● Chinese lead production figures in September base metals prices were resilient throughout were higher than expected, despite concerns October, and currently stand somewhat up on related to the poisoning incidents. the level the started that month on. ● Nickel prices have come off their recent highs ● GFMS’ Base Metals Index averaged 262.8 in of close to $20,000/tonne. Developments in October, up 3% on September and 31% year- the key stainless market where base prices on-year. In early November, our index, at 268, are under pressure suggest weak demand for is more than 90% higher than its February low. nickel in the short term. ● Aluminium production in China reached an all- ● The much discussed dominant position of tin time high in September and production outside has reportedly declined from holding 90% of the country was also up slightly. Demand all warrants to between 50-80%. Coupled with remains muted outside China. ongoing fundamental weakness, this saw tin prices retrace somewhat in October. ● Copper reached a cycle-peak above $6,600/ tonne in late October, underpinned by concerns ● Declining LME stocks as well as a suspension over supply tightness. An ongoing, and of a concentrator at the Century mine protracted, strike at BHP Billiton’s Spence mine boosted zinc prices, resulting in the metal has provided key support to prices. outperforming the other base metals. Base Metals Supply-Demand Overview (000 tonnes) 2003 2004 2005 2006 2007 2008 2009 Aluminium Consumption 27,887 30,285 32,040 34,366 37,953 38,120 35,138 Production 28,001 29,922 32,017 33,969 38,056 39,479 36,828 Metal balance 113 -363 -24 -397 104 1,360 1,690 LME Cash ($/tonne) 1,432 1,717 1,898 2,567 2,645 2,571 1,605 Copper Consumption 15718 16838 16689 17045 18175 18007 18023 Production 15275 15928 16573 17295 17952 18272 18268 Metal balance -442 -910 -116 250 -223 264 245 LME Cash ($/tonne) 1,780 2,868 3,864 6,731 7,126 6,952 5,100 Lead Consumption 6,823 7,295 7,783 8,062 8,181 8,665 8,852 Production 6,762 6,980 7,626 7,922 8,114 8,671 8,943 Metal balance -61 -315 -157 -140 -67 6 91 LME Cash ($/tonne) 516 888 976 1,288 2,600 2,085 1,710 Nickel Consumption 1,248 1,251 1,296 1,366 1,353 1,294 1,232 Production 1,207 1,251 1,288 1,341 1,398 1,364 1,264 Metal balance -41 0 -8 -25 45 70 31 LME Cash ($/tonne) 9,640 13,850 14,733 24,287 37,181 21,029 14,800 Tin Consumption 302 334 345 363 356 337 320 Production 276 343 350 351 349 333 343 Metal balance -26 9 4 -12 -7 -4 24 LME Cash ($/tonne) 4,896 8,513 7,370 8,763 14,580 18,499 13,475 Zinc Consumption 9,851 10,646 10,612 10,972 11,276 11,483 11,108 Production 9,873 10,395 10,220 10,643 11,359 11,665 11,300 Metal balance 22 -251 -392 -329 83 182 192 LME Cash ($/tonne) 1,432 1,717 1,898 2,567 2,645 2,571 1,605 Source: GFMS, WBMS, LME Independent - Informed - International I1
  • 4. Introduction - November 2009 Prices continue to defy fundamentals Base Metals & Other Commodity Prices In the aftermath of the recent LME week, field research has further confirmed GFMS’ view that the recovery of 200 base metal prices has yet to be matched by a material GFMS Base Metals Index Index, 2nd January 2009 = 100 improvement in the underlying fundamentals. Although Dow Jones UBS Index orders have undoubtedly come off the lows seen earlier in 150 the year, a real recovery has yet to emerge and consumption remains far below normal levels in most regions. The long awaited restocking phase in the semis sector has not began. GSCI 100 Coupled with production increases being seen for some of the metals, this suggests no real tightness of material has materialised to-date or is expected in the very near-term. 50 Jan-09 Mar-09 May-09 Jul-09 Sep-09 Nov-09 Despite this fact, most base metals prices in early November Source: GFMS are up on their one month prior levels and anything between 50% and 135% up on their lows earlier in the year. The GFMS Base Metals Index, which is constructed using equal Fundamentals reflected in relative performance weights on the six main LME metals, in early November Despite the aforementioned general mismatch of price stands at 269, up 5% on the 1st October level and 93% performance and supply-demand conditions, the individual compared to this year’s trough. Our index averaged 263 in metals’ fundamentals continued to affect the relative October, 3% up on September and 31% up year-on-year. performance of the six main LME metals. For instance, the exceptional performance of zinc from 1st October concurred Investors remain positive towards the sector with a net decline in LME inventories, supply disruptions The lack of a real improvement in the market’s fundamentals at the Century mine and came against the backdrop of a has continued to be compensated by investor interest market expected to swing to deficit in the last quarter. In in commodities, particularly those related to industrial contrast, aluminium and tin’s relative weakness reflected the production, where much of the current and projected high inventories that weigh on both metals’ prices as well recovery is expected to rely on. Essentially, investors as, in the case of tin, the partial unwinding of a major long are front-running the improvement in the base metals position. fundamentals and in doing so they have brought forward the price recovery. Market outlook In early November, GFMS remain of the view that base GFMS have often noted that the bulk of investor activity metals prices remain at levels exceeding those justified by on base metals tends to be part of a wider commodity their immediate fundamentals. Therefore we are slightly strategy, with base-metal specific players comprising only cautious, at least for the very near-term. Nevertheless, we a small niche portion of the market. By implication, over appreciate the momentum in base metals investment that periods of time, base metals prices tend to trend in a has been in place ever since the trough of last spring and similar trajectory to commodity prices in general, illustrated acknowledge that the potential for what we would see as in the accompanying graph. In October, base metals a long-overdue correction to be avoided, or to be of very underperformed the two main commodity indices we track, limited magnitude. a reflection of the sector’s lacklustre fundamentals as well as strength in energy-related commodities seen over the In the longer term, we remain largely constructive towards month. The chart, however, highlights that GFMS’ Base the wider base metals sector and this is reflected in our Metals Index so far this year has outperformed broader projections outlined in the individual metal sections of commodity indices, such as the GSCI. this report. This is by and large based on expectations of ongoing attention by investors coupled with, eventually, Dollar weakness supports prices a noteworthy improvement in the metals’ demand-side Another factor that has boosted base metals prices since last fundamentals as we progress into next year. This will most spring has been the weakness of the US dollar, particularly probably be augmented in the first and second quarter against the euro, and this continued to support the sector by the restocking cycle we expect will take place in many in October. For instance, looking at the latest data for the relevant end-use industries, although healthy results are also GFMS Base Metals Index constructed using euro prices, and seen in the third and final quarter of next year. Our base making the same comparisons made above, our index is up metals index is forecast to move within a range of 229 and by a more contained 3% on the 1st October level and 65% 337 over the year, peaking some time in the final quarter. compared to this year’s low. I2 Independent - Informed - International
  • 5. Introduction - November 2009 LME Prices Overview Prices US$/tonne % Change y-o-y Al Cu Ni Pb Sn Zn Al Cu Ni Pb Sn Zn Monthly Oct-08 2,121 4,926 12,140 1,480 14,402 1,302 -13.1 -38.5 -60.9 -60.2 -10.4 -56.2 Nov-08 1,852 3,717 10,702 1,291 13,644 1,153 -26.1 -46.6 -65.0 -61.2 -18.3 -54.6 Dec-08 1,490 3,072 9,686 963 11,240 1,101 -37.4 -53.4 -62.7 -62.9 -30.9 -53.2 Jan-09 1,413 3,221 11,307 1,133 11,373 1,187 -42.2 -54.4 -59.2 -56.6 -30.4 -49.3 Feb-09 1,330 3,315 10,409 1,101 11,039 1,112 -52.1 -58.0 -62.8 -64.3 -35.9 -54.4 Mar-09 1,336 3,750 9,696 1,239 10,676 1,217 -55.6 -55.6 -68.9 -58.8 -46.1 -51.6 Apr-09 1,421 4,407 11,166 1,383 11,744 1,379 -52.0 -49.3 -61.2 -51.0 -45.8 -39.1 May-09 1,460 4,569 12,635 1,440 13,793 1,484 -49.7 -45.5 -50.9 -35.6 -42.7 -32.0 Jun-09 1,574 5,014 14,960 1,674 14,986 1,557 -46.8 -39.3 -33.7 -10.1 -32.6 -17.8 Jul-09 1,668 5,216 15,985 1,679 14,039 1,579 -45.7 -38.0 -20.7 -13.7 -39.3 -14.8 Aug-09 1,934 6,165 19,642 1,900 14,870 1,884 -30.0 -19.2 3.7 -1.2 -25.8 9.3 Sep-09 1,834 6,196 17,473 2,205 14,869 1,822 -27.4 -11.4 -1.8 18.0 -19.1 5.0 Oct-09 1,879 6,288 18,525 2,241 15,009 2,072 -11.4 27.7 52.6 51.4 4.2 59.1 Quarterly 2008 Q1 2,729 7,763 28,863 2,891 17,695 2,443 -2.5 30.7 -30.4 61.8 39.1 -29.1 2008 Q2 2,941 8,448 25,730 2,316 22,612 2,143 6.5 10.6 -46.4 6.2 60.3 -41.5 2008 Q3 2,792 7,693 18,987 1,915 20,522 1,773 9.4 -0.3 -37.2 -39.0 37.0 -45.0 2008 Q4 1,830 3,940 10,885 1,251 13,127 1,189 -25.2 -45.6 -63.0 -61.8 -19.7 -55.1 2009 Q1 1,360 3,435 10,459 1,160 11,024 1,174 -50.2 -55.8 -63.8 -59.9 -37.7 -52.0 2009 Q2 1,488 4,676 12,992 1,506 13,551 1,476 -49.4 -44.6 -49.5 -35.0 -40.1 -30.2 2009 Q3 1,806 5,840 17,614 1,925 14,576 1,757 -35.3 -24.1 -7.2 0.5 -29.0 -0.9 Annual 2002 1,432 1,558 6,772 453 4,062 779 -0.8 -76.9 13.9 -4.9 -53.6 -12.1 2003 1,717 1,780 9,640 516 4,896 828 19.9 14.3 42.4 13.9 20.5 6.4 2004 1,717 2,868 13,850 888 8,513 1,048 0.0 61.1 43.7 72.3 73.9 26.5 2005 1,898 3,684 14,733 976 7,370 1,382 10.6 28.5 6.4 9.8 -13.4 31.9 2006 2,567 6,731 24,287 1,288 8,763 3,273 35.2 82.7 64.9 32.0 18.9 136.8 2007 2,639 7,126 37,181 2,595 14,536 3,250 2.6 2.5 76.8 24.5 -21.4 73.8 2008 2,571 6,952 21,029 2,085 18,499 1,870 78.1 3.3 253.5 338.0 111.1 111.1 Source: LME & GFMS LME Inventory Overview End-Period (000 tonnes) No. of weeks consumption Al Cu Ni Pb Sn Zn Al Cu Ni Pb Sn Zn Monthly Oct-08 1,528 238 58 48 4 182 3.3 1.1 3.2 0.5 0.9 1.4 Nov-08 1,533 291 58 48 3 193 3.4 1.3 3.2 0.5 0.8 1.4 Dec-08 2,338 341 79 45 8 253 5.1 1.5 4.3 0.5 2.0 1.9 Jan-09 2,811 491 84 54 9 345 7.2 2.4 5.7 0.5 2.2 2.9 Feb-09 3,227 537 99 60 9 358 8.3 2.6 6.6 0.6 2.1 3.0 Mar-09 3,477 502 108 62 11 344 8.9 2.4 7.3 0.6 2.6 2.9 Apr-09 3,792 399 114 72 13 329 9.7 1.9 7.7 0.7 3.0 2.7 May-09 4,237 312 109 79 14 324 10.8 1.5 7.4 0.8 3.5 2.7 Jun-09 4,395 266 110 92 17 353 11.2 1.3 7.4 0.9 4.1 2.9 Jul-09 4,565 282 106 107 18 408 11.7 1.4 7.1 1.1 4.4 3.4 Aug-09 4,613 300 116 121 20 435 11.8 1.4 7.8 1.2 4.9 3.6 Sep-09 4,585 346 121 128 25 437 11.7 1.7 8.1 1.3 6.1 3.6 Oct-09 4,556 372 130 130 27 429 11.7 1.8 8.7 1.3 6.3 3.6 Annual 2002 1,241 856 22 184 26 651 3.3 3.8 1.1 1.8 6.2 4.8 2003 1,423 431 24 109 14 740 3.6 1.9 1.2 1.1 3.4 5.4 2004 693 49 21 40 8 629 1.7 0.2 1.0 0.4 1.8 4.4 2005 644 92 36 44 17 394 1.5 0.4 1.7 0.4 3.6 2.7 2006 698 191 7 41 13 90 1.6 0.8 0.3 0.4 2.8 0.6 2007 929 199 48 45 12 88 2.2 0.8 2.2 0.4 2.6 0.6 2008 2,338 341 79 45 8 253 5.1 1.5 4.3 0.5 2.0 1.9 Source: LME & GFMS Independent - Informed - International I3
  • 6. Economic Indicators - November 2009 Economic Indicators In spite of the aforementioned lack of material recovery manufacturing Purchasing Managers’ Index (PMI) for the in consumption, in early November, the latest relevant Eurozone breached the important 50 mark, suggesting economic indicators remain by and large upbeat. Starting positive growth in the sector, for the first time in 17 months with the OECD Composite Leading Indicator (CLI), in in October. GFMS’ view the best single gauge of future global industrial production, August marked the sixth consecutive month- Moving to the United States, the ISM PMI rose to 55.7 in on-month increase, with the figure reaching 99.2, a level October, marking the third consecutive month of growth. unseen since July last year. All but a handful of individual Looking at the employment sub-index, this breached the countries’ indicators were up, with the majority of major 50 mark for the first time since July last year. Lagged by developed economies showing clear signs of recovery. one month, the latest data on housing starts in the country saw September starts increase at the margin compared to Confirming these improvements, it is worth noting the latest August. Finally, October vehicle sales kept to levels virtually revision by the European Commission of its forecast for unchanged from the previous month, far below the August growth in the EU-27 region to 0.7% next year, compared figure boosted by the “cash-for-clunkers” scheme. its May projection of 0.1%. Within the region, the latest Main Economic Indicators Jan-09 Feb-09 Mar-09 Apr-09 May-09 Jun-09 Jul-09 Aug-09 Sep-09 Oct-09 Manufacturing PMI Eurozone 34.4 33.6 33.9 36.8 40.7 42.6 46.3 48.2 49.3 50.7 USA 35.6 35.8 36.3 40.1 42.8 44.8 48.9 52.9 52.6 55.7 China 42.2 45.1 44.8 50.1 51.2 51.8 52.8 55.1 55.0 55.4 Japan 29.6 31.6 33.8 41.4 46.6 48.2 50.4 53.6 54.5 54.3 OECD Composite Leading Indicators OECD 92.6 92.4 92.7 93.5 94.8 96.2 97.7 99.2 Euro zone 93.2 93.4 94.2 95.4 96.9 98.5 100.2 102.0 France 95.5 96.1 97.1 98.3 99.6 101.0 102.4 103.7 Germany 89.9 89.9 90.6 92.0 93.9 96.1 98.4 100.8 Italy UK 94.8 94.6 94.8 95.4 96.4 97.7 99.1 100.7 USA 91.3 90.8 90.9 91.4 92.8 94.3 95.9 97.4 NAFTA 91.8 91.3 91.5 92.1 93.4 94.9 96.5 98.1 Japan 92.4 91.5 91.4 92.0 93.0 94.3 95.7 97.0 Brazil 98.2 97.2 96.7 96.7 96.9 97.2 97.6 98.0 China 91.9 92.5 93.6 94.9 96.4 98.0 99.4 India 94.1 94.2 94.7 95.4 96.2 96.9 97.9 98.8 Russia 89.8 88.7 88.6 89.3 90.5 91.8 93.2 94.3 Industrial Production (m-o-m) Euro-zone -2.7 -2.5 -1.1 -1.6 0.7 -0.2 -0.3 0.9 Germany -6.6 -3.6 0.0 -3.0 5.0 1.1 -1.0 1.5 France -4.3 -0.3 -1.3 -1.4 2.6 0.5 0.3 1.9 Italy -1.2 -4.2 -4.5 1.5 0.1 -0.2 2.4 7.0 UK -2.6 -0.7 -0.2 0.1 -0.6 0.6 0.3 -2.6 1.5 USA -2.2 -0.8 -1.6 -0.6 -1.1 -0.4 0.9 1.2 0.7 Japan -10.1 -9.4 1.6 5.9 5.7 2.3 2.1 1.6 1.4 South Korea (y-o-y) -25.5 -10.0 -10.5 -8.2 -9.0 -1.1 0.7 1.1 11.0 Brazil 3.0 2.3 1.2 1.2 1.4 0.5 2.2 1.2 China (y-o-y) n/a 3.8 8.3 7.3 8.9 10.7 10.8 12.3 13.9 India 0.0 -3.1 10.4 -10.9 4.2 3.8 -0.1 0.5 Consumer/Business Confidence indicators Eurozone Economic Sentiment 67.2 65.3 64.6 67.3 70.2 73.2 76.0 80.8 82.8 86.2 USA Consumer Confidence 37.4 25.3 26.9 40.8 54.8 49.3 47.4 54.5 53.4 47.7 Japan Consumer Confidence 27.0 27.6 29.6 33.2 36.3 38.1 39.7 40.4 40.7 Brazil Consumer Confidence 100.3 96.3 99.2 97.6 102.1 106.4 108.4 110.3 111.5 114.5 China Consumer Confidence 86.8 86.5 86.0 86.1 86.7 86.5 87.5 88.0 88.1 Source: OECD, Thompson Reuters EcoWin, National Statistics, Dismal Scientist & GFMS E1 Independent - Informed - International
  • 7. Economic Indicators - November 2009 October was also upbeat for Japanese manufacturing, and 7.9% in the first and second quarter respectively) and with the country’s PMI remaining comfortably within growth if the trend continues, the country seems set to comfortably territory at 54.3. Housing starts in the country were up at achieve its 8% target for the full year. Moving to industrial the margin in September, although they remained down production, growth accelerated to 13.9% in September notably on and year-on-year basis. Although vehicle (compared to 12.3% in August), and this on a year-on- production in the country was once again down year-on-year year basis. Going forward, conditions seem set to continue in September, the rate of declined slowed further and at 21% improving, as the country’s manufacturing PMI rose further it was the lowest this year-to-date. Industrial production in in October to 55.4, compared to 55 in the previous month. the country was up in September month-on-month, for the seventh consecutive month. Improvements were also noted for two of the other BRIC countries recently, with manufacturing PMIs for both Brazil Looking at China, where base metals consumption has and India, at 52.3 and 54.5 respectively, continuing to grown rapidly so far this year, the latest economic data suggest expansions in October. The index for Russia, in remains uniformly positive. Real GDP growth accelerated contrast, saw a return below the 50 mark, largely as a result in the third quarter, to reach at 8.9% (compared to 6.1% of weak export orders. OECD Leading Indicators & GFMS Base Metals Index US & Eurozone PMI & GFMS Base Metals Index 105 400 65 400 GFMS Base Metals Index GFMS Base Metals Index 60 350 Eurozone PMI 102 350 55 USA PMI 300 300 50 GFMS Index OECD Index 99 GFMS Index PMI Index 250 45 250 96 40 200 200 35 93 OECD Composite Leading Indicators 150 150 30 90 25 100 100 Jan-06 Jan-07 Jan-08 Jan-09 Jan-06 Jan-07 Jan-08 Jan-09 Source: GFMS, Thomson Reuters EcoWin Source: Markit Economics, GFMS Jan-07 Jan-08 Jan-09 Jan-06 China & Japan PMI & GFMS Base Metals Index Chinese IP Growth & GFMS Base Metals Index 65 400 25 400 GFMS Base Metals Index GFMS Base Metals Index 60 350 350 China PMI 20 % year-on-year IP growth 55 300 300 50 GFMS Index GFMS Index 15 PMI Index 45 250 250 10 40 200 200 35 5 150 150 30 Japan PMI 25 100 0 100 Jan-06 Jan-07 Jan-08 Jan-09 Jan-06 Jan-07 Jan-08 Jan-09 Source: Markit Economics, GFMS Source: GFMS, China National Bureau of Statistics Jan-07 Jan-08 Jan-09 Jan-06 Note: The GFMS Basel Metals Index is an average of the six base metals indexed prices with equal weights. This is in contrast to the LME index, which is heavily weighted
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