Copper, Nickel seen topping records this year

April 22, 2007 14:06

New Orleans - Secondary metal market participants expect the price of copper will easily reach its all-time high set last May, perhaps surpassing it, as countries around the world, particularly China, expand and rebuild.

"Even though people think $3.60 (a pound for Comex copper) is high, it's not. I think the market will test the previous high and possibly even go higher," Herbert Black, president of American Iron & Metal Co Inc told this week's annual Institute of Scrap Recycling Industries convention.

Nearly a year ago, Comex benchmark copper ran up to $4.16/pound, its highest level on record. The most-active July contract finished Friday around $3.62/pound after slipping earlier this year to a low around $2.40/pound.

"Never has there been more money to invest in metals. Never has there been the demand for commodities as you have right now. I think we're in a bull run that is going to supersede anything we all expected here today," Black said.

Asked for his forecast, he said he expected it would reach $4.20 in the near term, and may eventually go as high as $5.00, but "will definitely not stop at $3.60 per pound."
He and others in the panel discussion said copper, along with other base metals, had the markings of further rallies.

US not dominating

Tim Strelitz president of California Metal-X in Los Angeles said he looked for copper to reach $4.00, and maybe $4.50/pound.

"I'm bullish. There's no question the world is expanding exponentially, building roads and building high-rises. Last year was the best year we had on record and this year we're ahead of last year," the metal manufacturer said.

While some economists looked for slower US growth to drag on the global economy, metal processors pointed out that growth in other parts of the world were now leading the demand surge.
Strelitz noted that perhaps for the first time in about 100 years the United States was not dominating the metal markets.

"With what we see from countries building infrastructures around the world, this thing (rally) could go on for about four, five, six, maybe even 10 years," he said, noting that the high price volatility has made players anxious despite strong demand.

Insatiable appetites

Black said most consumers try to buy what they need to fill orders, while keeping as little inventory as possible with prices near historic highs. Even Chinese consumers, whose appetites for metal seem insatiable, buy hand-to-mouth, he said.

In addition, they said, investment funds, especially those taking long-only positions, continue to fuel the price rise.

Keith Gwozdz, metals trader at Man Financial, said fund allocation in base metals has risen 480% since 2000, and Man sees significant potential for further growth. So-called alternative investments currently make up less than 0.2% of the $150 trillion in global investments, he said.

Funds have billions of dollars to throw at a market whose entire annual production, including primary and scrap copper, is 16 million tons, said American Iron's Black.

"You can't sell millions of tons of copper short, but it's easy to buy millions of tons of copper to go long. So the risk is really on the upside, not the downside," he said.

Man's supply/demand forecast calls for a slight deficit in 2007, with 2008 moving back to a surplus, as new capacity comes on line. But with inventories low and demand expected to remain strong, new supply will not alleviate the copper shortages.

Persistent shortages should push nickel higher

Sat Apr 21, 2007 9:53pm ET

By Carole Vaporean

NEW ORLEANS (Reuters) - Expect nickel's price to rise beyond its current stratospheric level, as new supply due later this year will fail to satisfy a growing need for the metal in stainless steel, jet engines and hybrid cars, analysts said this week at ISRI's annual convention.

"For nickel, we're likely to see upside price risk for the next two quarters with some of the price pressures alleviated by the end of the year," Jason Schenker, economist at Wachovia Corp. told secondary metal market participants at the Institute of Scrap Recycling Industries' spring conference.

Schenker forecast a 2007 average benchmark London Metal Exchange nickel price of $43,309 a ton, slipping to a $36,000 average in 2008 with the addition of new supply.

Meanwhile, he said he looks for shortages in the face of current robust demand to send second and third quarter averages to $46,000, nearly twice 2006's per-ton average of $24,000.

LME nickel soared to an all-time peak of $50,150 per ton last week and closed Friday at $48,700 per ton.

New supply anticipated by year end or early 2008 will most likely be insufficient to stem new price gains, analysts said.

"Although we've seen some increase in supply, it's barely met the demand needs. We don't really see any new supply coming on line until the back end of this year and really the beginning of next year," said Schenker.

Seven large development projects are scheduled to add about 250,000 new tons of nickel a year by 2010, but mines set to have opened by now have been fraught with construction, environmental and other delays, Mo Ahmadzadeh, President of Mitsui Bussan Commodities (USA) Inc. told the same group.

"When we look forward to the next three years, we can't really see effectively any more than 200,000 (new) tons," he said. He added that nickel stocks at exchange warehouses have fallen to less than a day's worth of global consumption.

In the face of shortages, nickel is more in demand than ever, with rapacious stainless steel producers taking most.

World stainless steel production grew by 13.5 percent in 2006 to 28.1 million tons. Ahmadzadeh said that should increase by an average of five percent annually through 2009.

China, with a 45 percent increase to greater than 5 million tons of stainless steel last year, surpassed Japan as the world's top producer. It plans more capacity for 2007.

Skyrocketing nickel prices have impelled India and China to step up development of no-nickel or low-nickel stainless steel, said Vikram Kochar, vice president at Universal Metals Inc., a secondary stainless steel merchant.

While they have been used in many applications in those countries, he said the low nickel content makes the steel harder to work with and drives up manufacturing costs.

In addition, the lower-grade metal's surface appearance is less appealing and more corrosive, and many U.S. specifications require manufacturers to produce higher-grade steel.

Along with stainless steel, Schenker said nickel's use in the booming jet engine business, oil rig rebuilding and consumer appliances in new homes is growing.

He added that expensive gasoline should increase purchases of hybrid cars, which require about 150 pounds of nickel each.

Remembering Toyota's promise to eventually turn every car it makes into a hybrid, Schenker estimated about 500,000 tons of nickel would be needed every year.

"That's one-third of all the nickel produced. It's not going to happen. There's not enough supply. But that's not going to stop Toyota from trying," he said.

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