Non-ferrous metals set to plunge further

09:38, May 11, 2010      

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Non-ferrous metals are expected to further plunge amid growing concerns about the eurozone's prospects coupled with uncertainty surrounding China's exit from stimulus policies, analysts said, but the retreat may be short-lived due to a boom in infrastructure construction and automobile consumption.

"We have noticed that manufacturers' willingness to buy base metals waned recently, due to deep worries on the expansion of Greece's debt crisis to the whole of Europe," said Chen Yue, a non-ferrous analyst at Shanghai CIFCO Futures Co Ltd.

She added that Chinese government's policy to tighten banks' credit also caused financial pressures that led to more cautious procurement, in particular in zinc due to anticipated oversupply.

According to the International Lead and Zinc Study Group, zinc supplies will exceed demand with a global surplus of 418,000 tons in 2010. Zinc output is forecast by the organization to rise to 12.5 million tons while demand will reach 12.1 million tons this year.

All non-ferrous metals for three-month delivery traded on the London Metal Exchange (LME) sank heavily last week, making it the worst week in over three months.

Nickel accumulatively dropped by 15.7 percent, followed by zinc, aluminum, and copper with 8.83 percent, 6.99 percent, and 6.46 percent declines respectively last week.

"As the world's major importer of non-ferrous metals like zinc and refined copper, China's demand will significantly impact on these metals' international trading price," Chen said, adding that the recent measures to crack down on the sizzling property market amid tightened monetary policy will greatly change the demand landscape of base metals.

China is the world's biggest consumer of copper, for instance, accounting for about 25 percent of global demand.

The timing of China's stimulus policy exit remains unclear at present, with more measures, including an interest rate hike, in the pipeline, analysts said.

However, market experts said that demand will bounce back in the long run, as China is building a high-speed railway network and experiencing a boom in automobile consumption, which will buoy demand for most non-ferrous metals like aluminum and copper.

According to Transamine, a leading global service provider of raw material sourcing, global auto production will rise 20 percent in 2010, mainly driven by China, with the nation's auto sales forecast to rise 25 percent to 17 million units.

China's target of 8 percent growth in gross domestic product this year will ensure the copper industry remains healthy and stable, said Ma Shiguang, secretary-general of China Nonferrous Metals Fabrication Industry Association.

In addition, Wen Xianjun, deputy head of the China Nonferrous Metals Industry Association, said that the country may increase its aluminum smelting capacity by about 3 million tons this year, which will raise China's imports of alumina.

"There's plenty of room for growth in domestic aluminum consumption," Wen said.

"A drastic decline in non-ferrous metals is unlikely this year, as the trading prices of most metals are close to their cost price," said Zhu Lida, an analyst at Northeast Securities, noting that the cost price for electrolytic aluminum is around $2,048 per ton, compared with its closing price of $2,090 per ton on the LME last Friday.

"The overall price of these metals will move up, but we will see corrections in the middle of the year," Zhu said.

Source: China Daily


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