Virtual Metals Group

Media/Press

Twelve month view on metals rankings

Aluminium seen as the likely star performer in comprehensive metals review.

LONDON, 17 July 2008 (MineWeb.com) by Rhona O'Connell

In its latest monthly review of the metals markets, Fortis Bank (which produces the study in conjunction with VM Group) comes up with a series of price forecasts over a range of time horizons. Based on the closing prices of June 2008, the forecast for prices twelve months thereafter points to an underperformance by the non-ferrous metal sector (with the notable exception of aluminium), in comparison with the precious metals. Of the ten metals reviewed (along with plastics and steel, but for the purposes of this examination only the metals are considered), seven are expected to finish June 2009 at lower prices than current levels, with just three closing higher.

Top place goes to aluminium, which is expected to be 12% higher than at end-June 2008, followed by platinum and palladium.

The results can be summarised as follows (although the study contains forecasts for further out than just 2009);

Metal Jun-08 12 months Change
Aluminium 3,122 3,500 12.1%
Platinum 2,064 2,200 6.6%
Palladium 467 480 2.8%
Silver 18 18 -0.8%
Gold 930 900 -3.3%
Nickel 21,825 20,000 -8.4%
Copper 8,585 7,500 -12.6%
Tin 23,400 20,000 -14.5%
Lead 1,765 1,500 -15.0%
Zinc 1,912 1,500 -21.5%

The case for being conservative about platinum, despite its low inventory levels, revolves around high crude oil prices and the fact that the diesel price has been converging with that of gasoline. This revolves around strong and growing diesel demand (driven by the automotive sector in Europe and increasingly Korea, plus heating and industrial uses in emerging markets), and the fact that available refining capacity has been lagging behind end-use demand. Although the study notes that, when differential taxes are taken into consideration diesel can still be cheaper than gasoline, it points out that in all countries the gap between the two has narrowed.

There follows an in-depth study of the relative costs of running vehicles on gasoline as opposed to diesel, after which the review suggests that, while the diesel revolution in the EU is unlikely to be reversed, EU drivers are likely progressively to shift away from diesel engines if diesel prices remain consistently higher than that of gasoline. This works in favour of palladium against platinum as, although palladium is making inroads into the diesel sector, platinum remains the predominant metal in diesel exhaust cleaning. It is argued, though, that in the US diesel's price disadvantage is likely to be enough to deter US consumers from buying a diesel-engined vehicle, especially given the apparent preference among US vehicle manufacturers for the gasoline-hybrid route, even if this will only have an impact in the very long term. As such, therefore, the "diesel revolution" in the group view, is likely to be postponed yet again and that this will come as a big disappointment for platinum producers and investors.

Nonetheless the platinum price is expected to be almost 7% higher at the end of June next year by comparison with end-June 2007.

The star of the show is aluminium. Looking back over the second quarter, the study notes that "it is remarkable how similarly copper and aluminium have moved so far this year", with aluminium gaining 23%in Q1 and 3% in Q2, and copper gaining 25% and 2% similarly. Commenting that these two metals are not normally this closely correlated, the study suggests that the most obvious deduction revolves around speculative activity with respect to shifting views about the economic outlook, since these two are the metals most closely associated with economic activity, as well as being the two most liquid contracts on the LME.

They have, the study points out, quite different prospects in terms of supply and demand. As discussed elsewhere on this website, the study looks for aluminium to outperform copper in the second half of this year, with copper sliding as demand weakness in all markets. This is certainly implied by the shape of the forward curve, with copper in a sizeable backwardation and aluminium in contango.

The aluminium fundamentals, by contrast, are reflecting the fact that aluminium is the most-energy-intensive metal when it comes to production. The news on 10th July that 20 of China's largest producers had been forced to curtail output as a result of energy rationing took aluminium prices to a new record of US$3,380/tonne ($1.53/lb). The study points out that China is the world's largest aluminium producer and has been a net importer of primary aluminium for some months, which has also helped to keep prices relatively strong despite ample global exchange stocks and a likely global surplus of 300,000 tonnes of primary metal this year. China is not the only producer with problems, as security of long-term reliable and price-competitive electricity supply have resulted in Alcoa suspending 120,000tpa of production at its Rockdale smelter.

The study concludes that while China's news was "extremely bullish" it is not yet clear for how long the voluntary concerted production cut will last. While they are not expected to last for long if prices rise much further, the figures suggest that a year's suspension could take 750,000 tonnes of aluminium from the market, or more than twice this year's expected surplus. There is no immediate supply tightness and Chinese capacity is growing strongly. For the short term, though, the prognosis for prices is a good one.

VM Group in the News

2010

2009

2008

2007

2006

2005

  • September 26th - Europe's central banks seen queuing up to sell gold (Reuters)
  • THE YELLOW BOOK - Virtual Metals Research & Consulting and Fortis Bank in a new analysis of the global fundamentals and outlook for the international gold market.
  • Virtual Metals Research & Consulting announces today the launch of an innovative mechanism for the funding and development of sustainability projects in the minerals extraction industry. The new entity – called MineLife - is a collaboration between Virtual Metals, Barrick Gold Corporation, Gold Fields Limited, and Harmony Gold Mining Limited. It is dedicated to alleviating poverty and building long-term socio-economic development in Africa and, ultimately, in other developing markets.
  • Q2 05 The Hedge Book - Global hedging falls 2.5 Moz to 53.1 Moz
  • The latest edition of the Hedge Book, sponsored by Mitsui, shows dehedging quickened to 2.5 Moz in Q2 05, up from just 1.3 Moz in Q1 05. For the press release and full report click here

© 2009 Virtual Metals. All Rights Reserved. Logos by Shen Schubert

CONTACT US: info@virtualmetals.co.uk