The Hindu Business Line : Metals output rising amidst slowing demand

A RAFT of key base metal statistics for aluminium, copper, lead and zinc released in the last two days have generally confirmed rising output and slowdown in demand.

The data suggest that while output additions are not fast, demand conditions are showing signs of stabilising.

"Given that all of these markets remain in supply deficit, any positive surprises to demand or disappointment in regard to expected output additions could have dramatic price implications," commented Ms Ingrid Sternby, base metals analyst with Barclays Capital.

The global refined copper market remained in a 1,50,000-tonne deficit during January-April period, when global copper demand was down by 4 per cent year-on-year, with only China among the major consumers registering positive growth, according to International Copper Study Group.

Importantly, however, copper demand has slowed much faster than underlying economic activity, suggesting consumer de-stocking, leaving significant room for a rapid resumption in copper consumption if economic conditions improve, the analyst pointed out.

In addition, previously strong growth in copper mine output is easing, leaving the market increasingly reliant on stockpiled concentrates.

Moreover, the market is counting on a smooth start-up of new smelting capacity, whilst history suggests that this assumption is likely to be optimistic, while current labour disputes are helping to dent output growth prospects, experts said.

According to the International Lead and Zinc Study Group, supply shortfalls of lead and zinc amounted to 33,000 tonnes and 52,000 tonnes, respectively, in the first five months of this year. While these deficits are smaller compared to same period last year, new mine output of zinc remains particularly subdued, growing by less than two per cent year-on-year.

"Record low zinc treatment charges highlight an extremely tight concentrates market for zinc which we expect will keep the refined market in deficit through next year, while China is no longer a net supplier of refined zinc," said Ms Sternby.

Recently, aluminium prices have received a boost from announcements that large amounts of European aluminium capacity are bound to close this year because of high power costs.

While these gains are unlikely to sustain for long without improvement in demand, conditions show signs of stabilising after some recent weakness.

The US Aluminium Association reported an encouraging improvement in its order index for aluminium products.

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