Metals Monitor July 2012

Transcription

1 Metals Monitor July 212 Group Economics Sector & Commodity Research Casper Burgering Metals in macro context... Metal markets are dominated by macroeconomic developments. The global economy is cooling down and conditions in metal markets are deteriorating. Worries about the performance of the eurozone economy and the growth slowdown in China are the key factors to monitor. However, stronger trade data from China in May and interest rate cuts by the Chinese government (in early June) were encouraging, and metal prices stabilised after a downward period. These improvements aside, we remain cautious on the Chinese economy for the coming months and foresee a slowdown in metal demand due to continued economic uncertainty. The rescue package for Spain and the outcome of last Sunday's Greek elections improved sentiment among buyers of metals and other raw materials, but this will be short-lived. We expect over the coming month that metal markets will continue to be driven by uncertainty and we do not expect significant price improvements. Aluminium - EU aluminium demand remains subdued in 212 Since January 212, aluminium prices lost more then 12% due to weak market sentiment and growing macroeconomic concerns (eurozone crisis and growth slowdown in China). Fundamentally, the aluminium market is not very sound, with high stock levels and an annual surplus. However, the demand outlook in many regions (except EU) is positive and we expect prices to increase during H More on page 2 Copper - Conditions improve during H2-212 Fundamentally, the copper market is sound and demand conditions are expected to improve in China and the US. We expect copper market conditions to improve further during H EU market conditions will remain weak during 212, but we also expect some improvement in this region during H Assuming no macroeconomic shocks, copper price will average around USD 8,2/t over More on page 3 Steel - Weak demand, especially in EU and China Steel demand is weak and since April, steel prices are in a downtrend and have already lost 9%. The outlook for steel end-user sectors is mixed, with construction markets globally sluggish while car sales in the US, Japan and China are performing relatively well. Steel market conditions in the EU remain negative. Overall, steel prices are expected to decline further over the coming months... More on page 5 Steel raw materials - New capacity will weigh on prices Demand for raw materials from steel mills is currently weak, mainly because demand from steel end users is slow. Globally, sentiment in the construction sector is deteriorating and expectations are low. Additional supply from new mining projects until will push the iron ore market into surplus, while conditions in the coking coal market seem to be more promising... More on page 6 Base metals Ferrous metals Aluminium Copper Nickel Zinc Steel (HRC) Iron ore Coking coal Spot price $1,989 $7,792 $16,833 $1,94 $65 $14 $27 Avg month price $2,51 $8,295 $17,935 $2,2 $678 $15 $25 Avg year price (ytd) $2,14 $7,824 $17,821 $1,911 $639 $146 $29 price forecast 3 months $2, $7,85 $17,5 $1,95 $65 $145 $21 price forecast 212 $2,1 $8,2 $18,5 $2,5 $645 $145 $21 All prices in USD per tonne

2 2> Metals Monitor: July 212 Aluminium - EU aluminium demand remains subdued in 212 Since January 212, aluminium prices have lost more then 12% due to weak market sentiment and growing macroeconomic concerns (eurozone crisis and slowdown growth in China). The risk of a Greek exit from the eurozone seems to have eased and sentiment in aluminium markets has improved somewhat. A key concern is the Chinese aluminium market, which is massively oversupplied. In addition, there seems to be little evidence that the Chinese government is willing to do something about this in the short term. Some regional governments in China even provided subsidies (in the form of discounts on energy) to smelters, in order to keep production going. Although some smelters have offloaded loss-making production at low prices, widespread discipline among producers regarding aluminium production in the country will remain largely unaddressed and we do not expect this to change very soon. Aluminium output keeps increasing, while production cutbacks are being announced in the rest of the world. Chinese output increased in the first five months of 212 by almost 11% y-o-y. Expectations for the construction sector worldwide will remain generally weak. In China, the program for the construction of 7 million units of social housing will provide a base for aluminium demand. Nevertheless, demand conditions in China's construction sector are weak on the whole. On the other hand, Chinese aluminium demand has been firm in the electrical and packaging sectors. Meanwhile, car sales continue to grow in China and were up 1.3% in the first five months of 212. There are speculations that the Chinese government may introduce subsidies for car buyers who swap older vehicles for new, energy-efficient ones. This could boost car sales even further. While market conditions in the US car sector also improved, car sales in Europe continued to be slow. The main reasons are weak consumer confidence on the back of a weak economy and we do not expect any improvements in the short term. Globally, the surplus in 212 is expected, but this will only be approximately 1% of total consumption. Aluminium price should stabilize and will average at USD 2,1/t in 212. Weekly price movement 1,819 Global - Supply, demand and stocks ' tonnes 3,4 3, 2,6 2,2 1,8 1,4 1,515 1,96 2,89 1, LME-Aluminium Avg (1994-now) Avg (29-now) Avg ( ) Avg (21-28) 14, 12, 1, 8, 6, 4, 2, Total stocks Production Consumption 2,8 2,7 2,6 2,5 2,4 2,3 2,2 2,1 2, 1,9 2,14 1,8 3/25/211 7/25/211 11/25/211 3/25/212 LME-Aluminium Cash Avg 212-now Regional - S/D-balance ' tonnes , -1,2-1,4-1, China N. America W. Europe Spot rate Avg month Avg year outlook 3-m % change against spot rate outlook 212 % change against avg year Aluminium price $1,989 $2,51 $2,14 $2, 1% $2,1 4% Sources: Thomson Reuters Datastream, Metal Bulletin, Mining Journal,

3 3> Metals Monitor: July 212 Copper - Conditions improve during H2-212 Of all the base metals, copper seems to have the most solid fundamentals: declining stocks and global consumption that outpaces global production. But notwithstanding these relative tight market conditions, the copper price is currently being affected by macroeconomic developments worldwide. As a result, volatility in the copper price has increased. Earlier in June, the copper price lost ground as the Federal Reserve did not appear to be moving towards further monetary easing in addition to worries about the Chinese economy. But the copper price then improved once again following the bailout of Spanish banks and positive news on Chinese trade. On top of this, the fact that the risk of a Greek exit from the eurozone has eased also helped improve sentiment in the copper market. China is the biggest copper consumer; therefore significant changes in its economic circumstances can have a significant impact on copper price developments. Chinese copper output increased in the first six months of 212 by 8.5% y-o-y, while consumption increased by 9.5% y-o-y and stocks declined further. 1, 8, 6, 4, 3,934 4,44 Global - Supply, demand and stocks 7,38 2, 2, LME-Copper, Grade A Avg (1994-now) Avg (29-now) Avg ( ) Avg (21-28) Global copper demand softened early 212 and is now also relatively weak. The recent interest rate cut by the Chinese government has a positive effect on the copper market and prices should benefit. Nevertheless, the rate cut was also a clear signal that the Chinese government believes the economy is currently fragile. Long-term prospects for copper will remain buoyant, as demand from China for the red metal is projected to increase further during H Although construction demand conditions in China are generally weak, the program for the construction of 7 million units of social housing will provide a base for copper demand for the rest of 212 and beyond. Meanwhile, copper market conditions in Europe continue to be hampered by the eurozone crisis. This mainly translates into a slowdown in end user copper demand. While market circumstances in the US seem to be improving, construction in Europe will remain slow and is not expected to improve this year. In general, macroeconomic uncertainties continue to weigh on the copper market. We expect copper price to average at USD 8,2/t in 212. Weekly price movement 1, 9,5 9, 8,5 8, 7,5 7, 6,5 Regional - S/D-balance 7,824 6, 3/25/211 7/25/211 11/25/211 3/25/212 LME-Copper, Cash Avg 212-now ' tonnes 5,4 5,2 5, 4,8 4,6 4,4 4,2 4, ,4 1,2 1, Stocks (r.axis) Production Consumption ' tonnes ' tonnes 1,5 1, , -1, Europe China Americas Spot rate Avg month Avg year outlook 3-m % change against spot rate outlook 212 % change against avg year Copper price $7,792 $8,295 $7,824 $7,85 1% $8,2 5% Sources: Thomson Reuters Datastream, Metal Bulletin, Mining Journal, ICSG,

4 4> Metals Monitor: July 212 Other base metals - Market conditions deteriorated Nickel - Stainless demand declines Since January 212, the nickel price has dropped by more then 22% due to a decrease in Chinese nickel demand during H1 212 and prospects are far from positive. The availability of nickel at LME warehouses remains high and is expected to increase even further during H The market is also anticipating the release of new capacity this year and next, which will heavily distort the S/D balance and have a downward effect on prices if demand fails to pick up. Meanwhile, demand remains sluggish. The stainless steel sector (biggest nickel end user) is weak. Due to the recession in Europe, stainless demand has experienced a severe slowdown. For future growth in stainless steel demand, we must focus on China, India and other Asian countries. Conditions in the US seem to be improving, with the ISM still at a relatively favourable level. In South American markets, stainless steel demand is expected to remain weak in H Because of the decline in nickel prices, nickel plants with high production costs will face problems if prices decline even further. Zinc - Stocks keep on increasing Zinc prices reached their 212 peak at the end of January. Since then, prices have declined and have already lost 1% so far. The reason for the decline was a deterioration of zinc fundamentals and negative sentiment on macroeconomic developments. The level of zinc stocks has increased by 15% since January 212 and consumption levels globally have been poor, especially in the EU. Weakening downstream market demand for zinc has forced smelters to cut production or conduct (early) maintenance on facilities. Poor demand among zinc end users has also hit concentrate miners and concentrate prices have declined to relatively low levels. Chinese consumption of zinc concentrate declined 45% in April y-o-y. Manufacturing PMI in Europe is still at low levels and there is plenty of stock available to service any increase in demand. The automobile sectors in the US, Japan and China are doing well and global prospects remain positive, but the lack of construction activity will continue to weigh on zinc prices. Nickel - 55, 5, 45, 4, 35, 3, 19,688 25, 2, 16,723 15, 13,564 1, 5, 6, LME-Nickel Avg (1994-now) Avg (29-now) Avg ( ) Avg (21-28) Global - Nickel supply, demand and stocks Zinc - 5, 4, 3, 2, 1, 1,6 1,515 1,677 Global - Zinc supply, demand and stocks 2, LME-SHG Zinc Avg (1994-now) Avg (29-now) Avg ( ) Avg (21-28) ' tonnes Stocks (r.axis) Production Consumption ' tonnes 4, 3,5 3, 2,5 2, 1,5 1, Stocks (r.axis) Production Consumption Spot rate Avg month Avg year Spot rate Avg month Avg year Nickel price $16,833 $17,935 $17,821 Zinc price $1,94 $2,2 $1,911 Sources: Thomson Reuters Datastream, Metal Bulletin, Mining Journal, INSG, ILZSG,

5 5> Metals Monitor: July 212 Steel - Oversupplied markets, especially in China and EU From January to April 212, global steel prices increased by almost 11%. But starting in April, conditions in the steel market started to turn. Given the lower economic growth in China and weak global steel demand among end users (especially construction), global steel prices declined by almost 9%. Weak global demand meant steel output essentially stabilised in the first five months of 212 while inventories increased. The current level of steel output and low demand has put downward pressure on steel prices. If steel prices continue to fall, mills will eventually be forced to cut production. In order to restore some sort of balance to the global steel market, extensive production cuts are needed, especially in China. Currently, global utilisation rates are still below pre-crisis levels and we expect that these utilisation rates will decline to a level of 7-75% in coming months, but oversupply will remain a structural problem. Capacity cutbacks, strict producer discipline and consolidation can help bring the market into a more balanced and healthy position. In Europe, ArcelorMittal which is facing weak demand for steel in the European Union plans to close down two blast furnaces in Q3 in an attempt to stop prices from falling even further and restore its profit margins to acceptable levels. Demand from the global automobile sector is generally healthy, but there are some regional differences. In Latin America, automobile sales have declined. In Brazil, output fell by 7.7% in May y-o-y while car production in Argentina dropped by 24.4%. The outlook for automobile sales in the US, China and Japan is still positive, while sales disappoint in Europe. With the holiday season approaching in many regions (July- August), we expect that business activity in the global steel market will remain sluggish. Sentiment among steel buyers is weak and most steel participants expect prices to decline over the coming three months. In addition, steel stockists want to lower inventories. All in all, steel prices are expected to fall further in the coming three months. For 212, we expect global steel prices to average at USD 645/t. 1,2 1, Global steel price Avg (1995-now) Avg (29-now) Avg ( ) Avg (21-28) Global steel production (% change) y-o-y % change 2% 15% 1% 5% % -5% 629-1% China steel production World steel production RoW steel production 212 steel price movement Global steel utilisation ratio /2/212 2/1/212 3/2/212 4/3/212 5/3/212 6/4/212 Global steel price Avg 212-now 1% 95% 9% 85% 8% 82% 77% 79% 79% 75% 7% 71% 65% 6% 55% 5% World utilisation ratio 28 avg 29 avg 21 avg 211 avg 212 avg Spot rate Avg month Avg year outlook 3-m % change against spot rate outlook 212 % change against avg year Steel price $65 $678 $639 $65 % $645 1% Sources: Thomson Reuters Datastream, IISI, Metal Bulletin, Mining Journal,

6 6> Metals Monitor: July 212 Steel raw materials - New capacity will weigh on prices Iron ore - Lower rate of demand growth Coking coal - Stable during 212 One year ago, iron ore fines traded at USD 195/t while today they are trading at USD 14/t. This represents a price decrease of more then 28%. Prices dropped on weak downstream steel demand, with demand from the construction sector in China particularly worrisome. And although global business activity has been relatively slow in recent months, iron imports into China increased 9% y- o-y in the first five months of 212. This could indicate that China is sourcing iron ore strategically, because prices are currently low and steel output has dipped in recent months. Long-term prospects look positive. Urbanisation in China will provide a solid base for iron ore prices over the coming years and the start of the social housing program this year is a good example. But the rate of growth in iron ore demand will slow and will not reach the rate we have witnessed over the last decade. And given this slowdown in demand, many new iron ore mining projects have been cancelled or mothballed. From a global perspective, the coking coal market can be characterised by limited supply (due to constraints) and a lack of demand from steel mills. In China, domestic coking coal prices declined due to a slowdown in demand among steel mills for domestic material. However, import demand has increased. In the first five months of 212, China imported more then 21 million mt of coking coal, up almost 34% y-o-y. Prices remained strong. Anglo American was able to negotiate a price increase of 7% q-o-q for deliveries to South Korea s Posco. Long-term prospects for the coking coal market are robust. Reserves are relatively limited and supply constraints (infrastructure problems, weather and strikes) are preventing solid future supply growth. In addition, the volume of available high-quality coking coal is limited. This, combined with the small number of good-quality coking coal deposits and a strong outlook for demand (from Brazil, India and China), mean prices are likely to stay firm Iron ore fines China Avg (26-now) Avg (29-now) Avg (26-28) Avg (21-now) Coking coal Australia Avg (26-now) Avg (26-28) Avg (29-now) Avg (21-now) 212 iron ore price development 212 coking coal price development /12 2/12 3/12 4/12 5/12 6/12 Iron ore fines China Avg 212-now /12 2/12 3/12 4/12 5/12 6/12 Coking coal Australia Avg 212-now Spot rate Avg month Avg year Spot rate Avg month Avg year Iron ore price $14 $15 $146 Coking coal price $27 $25 $29 Sources: Thomson Reuters Datastream, Metal Bulletin, Mining Journal,

7 7> Metals Monitor: July 212 China - key factor for global metal markets China metal balance - share of China in world metals production and consumption Aluminium Copper Nickel Zinc Crude steel Iron ore Coking coal - Production share 44% 28% 23% 4% 47% 15% ** 51% - Consumption share 44% 41% 4% 45% 51% * 65% *** 57% * = finished steel demand; ** = coverted to world high quality average; *** = of total world imports April s reports and the ones released so far for May, showed that China s growth is now softer than expected driven by weaker internal and external demand. April s data already showed weaker economic activity in China. Industrial production growth declined to 9.3% yoy in April from 11.9% the previous month, while retail sales showed a more moderate pace of growth, slowing to 14.1% yoy from 15.2%. Meanwhile, April s fixed investment growth rose by 19.7% yoy compared to 2.7% the previous month. economic forecasts 212: - GDP 8.% - Inflation 4.% - Unemployment 4.% Automobile sales Automobile sales (volume x 1,) Investments construction sector 4% 3% y-o-y % change 2% 1% % Investments: building under construction PMI Manufacturing and new orders 8 Loans by financial institutions PMI Manufacturing PMI New orders y-o-y % change Loans by financial institutions Chinese import and export aluminium 4, 3, 2, tonnes 1, 1,4, 1,2, 1,, 8, 6, 4, 2, Export aluminum Import aluminum, l.axis tonnes Chinese import and export copper 5, 4, 3, 2, tonnes 1, Export copper Import copper Sources: Thomson Reuters Datastream, IISI, UNCTAD, Metal Bulletin, IEA, Mining Journal,

8 8> Metals Monitor: July 212 Casper Burgering Hard Commodities expert Risk Management & Strategy Group Economics Sector & Commodity Research Phone Visiting address: Gustav Mahlerlaan 1 (HQ 1161), 182 PP Amsterdam Postal address: PO Box 283 (HQ 1161), 1 EA Amsterdam Social media: follow us on Twitter (mostly Dutch) and download our App Market Insights. You can join our Linked In page and watch our videos on our You Tube channel or on TV Disclaimer Copyright 212 Bank N.V. and affiliated companies (""), Gustav Mahlerlaan 1, 182 PP Amsterdam / P.O. box 283, 1 EA Amsterdam, The Netherlands. All rights reserved. This material was prepared by Group Economics Sector Research and Private Banking International. It is provided for informational purposes only and does not constitute an offer to sell or a solicitation to buy any security or other financial instrument. While based on information believed to be reliable, no guarantee is given that it is accurate or complete. 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