Tom Stundza -- Purchasing, 1/14/2010 2:00:00 AM
What buyers should know
Independent metals consultant Angus MacMillan sees continued big surpluses of nonferrous metals worldwide, with Asia the only region where 2010 demand could surge.
China's metals companies will look to the international marketplace, including North America, for export sales in 2010 only after they have satisfied demand in the domestic market.
Global nonferrous metals prices have been running ahead of the market's still-poor fundamentals for some months so, while they may inflate on improved demand in early 2010, the analysts say prices will have to slide at some point.
Few analysts see a dramatic improvement in world exports of steel by China's mills because of home-market demand growth and uncertain production tonnages caused by government restructuring mandates.
A steel worker operates equipment at a car-part manufacturing plant in Beijing.
A steel worker operates equipment at a car-part manufacturing plant in Beijing.
Metal-market prices typically move up whenever China buys in bulk. But the world's third-largest economy isn't using all the metals it buys these days, creating major surpluses of ores, semifinished shapes and mill products. Yet, traders, merchants and speculators continue to use reports of Chinese metals-purchasing activity-much of it by the government's State Reserve Bureau-as an excuse to boost world prices.
China is the largest global buyer of iron ore, scrap steel, metallurgical coal, refined copper, smelted aluminum and refined nickel, and a major world buyer of lead, zinc, tin and various ores. Interestingly, these imports only account for 8% of China's gross domestic product. Yet, prices on world seaborne iron ore markets and nonferrous commodity exchanges tend to react-or, more likely, overreact-to changes in Chinese purchasing of metals.
"China's economy has become increasingly globalized and dependent on imports," says Liang Da, a senior statistician of the National Bureau of Statistics in Beijing. In a recent analysis on international trade in the China Daily newspaper, Liang adds that "imports have become a major indicator of the country's economic growth."
Also, other economists say that Liang's assertion should only work to influence pricing when offshore demand is so strong that large amounts of metals imports are needed to make mill products and durable goods to satisfy robust home-market demand and strong exports. Instead, over the past two years, China has overstocked, says world economist Nouriel Roubini, so metals prices soon may slide as the nation cuts its rate of accumulation.
The professor of economics at the Stern School of Business at New York University and chairman of the RGE Monitor economic consultancy tells a recent mining conference in Kalgoorlie, Australia, that China's short-term "massive stockpiling of commodities" has potential disruption ramifications for global metals prices. For example, although China has become the world's biggest consumer of copper, refined cathode stocks have risen sixfold on the Shanghai Futures Exchange this year.
Roubini suggests this is a sign that China has accumulated an inventory of commodities that is excessive to the current and near-term growth rate of its metalworking economy. Evidence: The global economic slump battered the country's key exports market so that China appears to have become a net importer for several key metals products. In fact, according to Purchasing calculations of data from the country's General Administration of Customs:
Net imports of copper products will be 1.325 million net tons when 2008 import/export statistics are audited, or 36% lower than the 2.087 million in 2008.
Net imports of aluminum will be about 7.699 million net tons, as opposed to 6.665 million tons net exports, due to the 50% collapse in light metal exports. Also affected by the drop in exports is steel scrap.
Net imports of steel scrap are expected to be 39,000 tons, as compared with net exports of 1.77 million tons in 2008.
Net imports of steel sheet and plate are expected to be 93.517 million tons in 2009, as opposed to net exports of 6.057 million tons in 2008.
The Chinese Academy of Social Sciences, a think tank in Beijing, says China's economy could grow 9.1% in 2010, up from an 8.3% growth in 2009, if exports recover.
In a similar vein, a research report by Macquarie Bank finds double-digit growth in the apparent supply of key metals (see table). As an example, analyst Max Layton says the recent increase in Chinese refined copper stockpiles in Shanghai Futures Exchange was caused by over-importing earlier in the year.
Jenny Gu, senior market analyst at JD Power Consulting (Shanghai), earlier forecast full-year motor vehicle sales of 14.9 million units, up from 9.4 million in 2008-spurred by the country's halving of the sales tax to 5% and $1.46 billion of cash-for-clunkers subsidies to help consumers buy upgraded vehicles. However, new 11-month nationwide automobile and light truck sales statistics project 2009 sales around 13.2 million units.
In any event, the auto industry growth hasn't been matched by growth in sales of other metal-using consumer durable products. Evidence: China's industrial output increased 9.4% year-on-year though October, according to figures released by the National Bureau of Statistics. The growth rate was 5 percentage points lower than January-through-October 2008. Group vice chairman Chen Hong at China's leading automaker Shanghai Automotive Industry Corp.forecasts 2010 motor vehicle sales at only 13.4 million based on concerns of the level of consumer spending next year.
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