Commodities Outlook For The Remainder Of 2012: Base Metals
  1. Commodities Outlook For The Remainder Of 2012: Introduction
  2. Commodities Outlook For The Remainder Of 2012: Different Story In Second Half
  3. Commodities Outlook For The Remainder Of 2012: Energy
  4. Commodities Outlook For The Remainder Of 2012: Natural Gas
  5. Commodities Outlook For The Remainder Of 2012: Coal And Uranium
  6. Commodities Outlook For The Remainder Of 2012: Precious Metals
  7. Commodities Outlook For The Remainder Of 2012: Base Metals
  8. Commodities Outlook For The Remainder Of 2012: Agriculture
  9. Commodities Outlook For The Remainder Of 2012: Conclusion

Commodities Outlook For The Remainder Of 2012: Base Metals

Steel is iron alloyed with other compounds like carbon. It is the most widely produced metal in the world. This industry is dominated by China. At one time the U.S. was the top producer, but Asian competition eroded its position. The U.S. had other issues, such as the high cost of operating a steel mill. Steel products come in four categories: flat steel, long steel, cold rolled strip and sheets and hot rolled strip and sheets. China is the No.1 steel consumer followed by the U.S., Japan, India and South Korea. World steel production was 1,527 metric tons (MT) in 2011, 6.8% better than 2010. There was a marked a slowdown in the production of steel in 2008. Decreased demand created lower pricing, and a large inventory of steel had to be worked through, which took a large amount of time. In late 2009, the business began to turn around. It also improved in 2010 and 2011. The table below shows global steel production changes broken down into specific countries. This information compares the first half of 2011 to the first half of 2012.

Location
% Change Of Steel Production
United States
8.4
Canada
6.5
Mexico
1.8
Brazil
-2.5
Germany
-5.7
Italy
0.3
France
3.4
Spain
-13.9
United Kingdom
-4.5
Poland
4.8
Belgium
-14.7
Austria
-2.6
Netherlands
-6.2
Czech Rep.
-4.5
Sweden
-10.8
Slovakia
3.7
Finland
-7.9
Romania
7.7
Luxembourg
-22.8
Greece
-28.5
Hungary
-2.3
Russia
2.7
Ukraine
-3.0
Turkey
9.3
China
1.8
Japan
0.0
India
3.1
South Korea
3.1

These numbers show which countries were hit the hardest by the eurozone financial crisis. It also shows the link between economic growth and steel's part in it. Going forward, steel as a commodity could get a short-term pop given the pullback. I wouldn't go catching any falling knives here. It could continue downward in the short term. Right now, I have steel trading flat through year end, but we could see a lot of volatility.

Aluminum is the second most widely used metal in the world, right after steel. Aluminum has two advantages that help to separate it from other metals. It is lightweight and resistant to corrosion. Because of this it has a wide range of uses. We all know it is used in pop cans, but it is also useful to the automobile and airline industries. Aluminum is used in bridges and oil pipelines. Almost half of all aluminum production is used in transportation and packaging, both of which will continue to see difficulties through year end. In the U.S., the second quarter of 2012 was a little better than the first. In the first quarter, the U.S. produced 525,047 MT, while the second quarter was a little better at 526,265. I believe the price of aluminum will average $2,101/MT. It will be better in 2012 with an average of $2,225/MT.

After steel and aluminum, copper is the third widely used metal. It has great electrical conductivity, malleability and has a resistance to corrosion. About half of all copper is used in building and construction projects. This is followed by engineering and electrical. It is also important in antimicrobial applications. Copper is alloyed with other metals. When it is alloyed with nickel it produces bronze, and brass with zinc. The majority of U.S. copper production comes from mines in Arizona, Utah, New Mexico, Nevada and Montana. All land-based resources are equal to 1.6 billion MT. Chile is the No.1 copper producer in the world. Here are the 2011 top copper producers.

Country
Copper Production
Chile
5,801
China
1,432
Peru
1,361
United States
1,224
Australia
1,056
Russian Federation
786
Zambia
736

Copper inventories have been drawing down through 2012. This is happening while production has decreased and China continues to restock. Look for copper prices to average $7,812 through 2012. I believe copper prices will improve some in 2013 to 8,410/MT.

Zinc is the fourth most widely used metal. It is used in galvanization, which is the application of one metal to another to prevent rust and corrosion. Another use is brass and bronze coatings plus zinc alloying. Zinc is mined in 50 countries and there are four types of zinc deposits:

1. Volcanic hosted massive sulphides
2. Carbonate hosted
3. Sediment hosted
4. Intrusion related

Zinc refinery production is slowing, but it could take a year to work through record levels of inventories. Because of this, the 2012 average price for zinc should be $2,016/MT. I don't see much improvement in 2013, with an average of $2,056/MT.

Nickel is of the iron group of metals. It is used as an alloy with metals like copper. Its most important use is creating stainless steel. This produces steel with an increased resistance to corrosion. Other uses are ferrous and nonferrous alloys, plus electroplating. Russia and Australia are exceptionally important with respect to this commodity. Both produce a significant amount, but Australia's close proximity to China has been an advantage. The 2011 top nickel producing countries are:

Country
Nickel Produced
China
411.2
Russia
265.7
Japan
157.3
Canada
142.4
Australia
111.6
Norway
92.4
Finland
48.5
New Caledonia
40.0
Columbia
37.8
United Kingdom
37.4

I think any price increases will be met with increased production. Nickel prices rest firmly on what China is able to do. I think we will see a soft landing, as I have said earlier which could support prices next year. As for the rest of 2012, we will only see price appreciation if production delays from new suppliers continue. Look for an average 2012 price of $17,229/MT, with 2013 improving to $18,512/MT. Commodities Outlook For The Remainder Of 2012: Agriculture

  1. Commodities Outlook For The Remainder Of 2012: Introduction
  2. Commodities Outlook For The Remainder Of 2012: Different Story In Second Half
  3. Commodities Outlook For The Remainder Of 2012: Energy
  4. Commodities Outlook For The Remainder Of 2012: Natural Gas
  5. Commodities Outlook For The Remainder Of 2012: Coal And Uranium
  6. Commodities Outlook For The Remainder Of 2012: Precious Metals
  7. Commodities Outlook For The Remainder Of 2012: Base Metals
  8. Commodities Outlook For The Remainder Of 2012: Agriculture
  9. Commodities Outlook For The Remainder Of 2012: Conclusion
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