The Hindu Business Line : Car boom in Asia driving metals to new highs

ASIA is driving not only the base metals market, but also passenger car market. Despite decline in Western Europe and no growth in North America so far this year, world car production is set for another year of expansion in 2005, thanks to Asia.

The slowdown in car production in Europe and the US is more than offset by growth in Asia and Latin America. This is likely to prove positive for base metals and for steel as the automotive sector is an important end-use market for these commodities.

World passenger car production data disclose a 2.6 per cent increase in 2002 to over 33.54 million, which increased to 34.96 million cars (4.2 per cent growth) in 2003.

With expansion slowing down to 2.2 per cent in 2004, production touched 35.73 million.

However, both Western Europe and North America registered a decline from the production levels of 2002, while Asian growth (spurred by China, Japan and South Korea) has been robust and consistent.

In the first half of this year, world car production expanded by 1.7 per cent to about 18.5 million versus 18.2 million of same period in 2004, of which Asian growth is placed at a healthy 5.8 per cent to 7.5 million cars (7.1 million).

Admittedly, there is a strong correlation between car production and GDP growth as also between car production and base metals and steel demand.

"We expect 2005 and 2006 to be another good year for world economic growth, with GDP expected to expand by 4.3 per cent and 4.0 per cent in these two years respectively.

This should also be reflected in growth in car production, which we expect to rise by at least 2 per cent in both years," Mr Adam Rowley, metals analyst with Macquarie Research (Metals and Mining) said.

The general perception is that the automotive sector is a drag on global demand, but from a global perspective it may not be the case as the available data so far from this year suggests, the expert pointed out.

Within base metals, lead and aluminium have the greatest exposure (although aluminium's exposure is dominated by secondary rather than primary metal).

The transport sector accounts for approximately 60 per cent of total demand for lead and a little over 30 per cent of total demand for aluminium, while for zinc, nickel and copper it is between 15 and 30 per cent.

No wonder, there has been a close correlation between world car production and lead and aluminium consumption over the years, although this also reflects the correlation between both these variables and GDP.

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