Raw Materials Group sees 2010 as another year of volatile metal prices

first_imgIn its annual full-year forecast for 2010, the Swedish research organisation, Raw Materials Group (RMG), says that the metal price bottom for this period of economic downturn was passed early in 2009 and, for 2010, the company forecasts another year of volatile metal prices with a mean price below the current day level for most metals. It says a falling market has been replaced by a market with physical demand and likely strong speculation over prices.Entirely in line with last year’s RMG forecast, all metals except gold fell during 2009 compared with 2008. “The two dominant factors which led metal prices to show a strong upturn from the bottom levels of 2009 are the strong physical demand from China and Asia combined with speculative driving forces from financial players. As the end consumption rate remains relatively low in relation to the period before the financial crisis, a situation has arisen where stockpiling and price rises are taking place simultaneously for most metals.“Taking copper as a representative example of this trend, the upturn has resulted in prices increasing from $2,907/t during the first week of 2009 to $6,927/t during the last week of the year. At the same time, stockpiling in Shanghai increased five-fold during the year. This situation is unsustainable in the long-term and RMG therefore expects a price correction during the first half of 2010.RMG sees challenges for the mining industry in the near term though. “The substantial production cutbacks implemented by the mines in late 2008 and early 2009 as regards nickel, zinc and iron ore in particular has been replaced by the start-up of closed capacity. A challenge for the mining industry heading into 2010 is the fact that these start-ups have to some extent been incentivised by high metal prices rather than strong physical demand.“In the longer term, 2011 and 2012, the high level of activity in the mining industry is likely to continue. The key factors behind this are the fundamental situation with strong demand from the developing economies combined with an already challenging situation in creating new capacity at the mining stage. It will become increasingly difficult, partly because of financing problems in the wake of the financial crisis, in keeping up with demand for metals, suggesting that further price increases for metals are likely.”On iron ore: “the continuing strong position of the three dominant iron ore companies suggests that the steel companies will find it difficult to negotiate reductions in the price of iron ore in spite of the overproduction that is taking place. The lower freight prices also mean that domestic iron ore production in China will be unfavourable compared with imports from Brazil and Australia. The Chinese production is also taking place at ever-lower concentrations, which also suggests that ore imports are likely to increase and that the high price of iron ore will probably continue.”On gold: “[it] has risen in recent years, but the three key price-driving factors are now history: the fall of the dollar looks to be over for now, the move to more secure investments during the financial crisis has come to a halt as a result of the return of risk appetite and the falling output of mines in 2009 has been reversed for the first year since 2001. However, the accelerating interest of China and India in investments and the haunting spectre of inflation following the government’s stimulation package are factors which could result in the price of gold remaining high.”The base metals “will probably see a price correction from the current prices during the first half of 2010. Closed mine capacity has been restarted following the price upturn during 2009 and stocks are growing as demand still has some way to go before it reaches 2006-2008 levels. On a full-year basis, however, base metals will stabilise at a level 10-20% higher during 2010 than the average for 2009, although this represents a slight downturn from the current day prices.”Then, moving to steel: [these] companies were amongst the first to reduce production during the economic downturn, yet steel prices still fell by 50-60% between 2008 and 2009. During 2010, the strong pressure on steel prices will continue as China constantly expands its capacity and the European and American steelworks continue to operate with low capacity utilisation.”last_img

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