Demand seen slipping for base metals

After slumping by 21% in real terms in 1990, base metal prices are set to slip further in 1991 as demand continues to decline, writes Metals & Minerals Research Services of Great Britain in a recent Metals Analysis & Outlook. “The Gulf crisis aside, consumption is expected to be particularly weak in the first six months and, despite a recovery in the latter part of the year, the prospects for 1991 as a whole are rather gloomy,” says the company’s researchers.

Market balances may remain sufficiently tight to limit some of the downside and prices could find support from continued dollar weakness. But the company says a further fall in nominal prices of 8-18% in real terms can be expected this year, leaving real quotations almost 40% below their 1988 peak and 5-6% above the all-time low of 1986.

Looking further into the future, the company predicts a strengthening of economic activity in 1992, followed by above-average growth in the subsequent two years before a cyclical downturn occurs again in 1995.

Aggregate base metal consumption is forecast to be 14.4% higher in 1995 than in 1989. Demand for aluminum is expected to be strongest during the period 1989-95, with tin consumption lagging comparatively far behind.

Nickel should benefit from a severe squeeze once the stainless steel cycle turns, says the company. A slump in prices to below US$3 per lb. in real terms during 1991 is foreseen before a rally takes the metal to new price highs.

Frequent supply disruptions, coupled with sustained demand, buoyed copper prices in 1990 but the researchers doubt this combination of factors can continue for long. Mine capacity is set to rise by 4-5% in 1991, mainly because of the recent commissioning of the Escondida mine in Chile. Copper prices are expected to fall to below US$1 per lb. in the coming months.

Lead prices, it is predicted, could enjoy a period of greater stability than in 1990 when supply disruptions kept average prices above US35 cents per lb. Limited price weakness is expected in 1991 but, within three years, producers may again be struggling to keep pace with demand.

Zinc may be in for a rough ride. “A further bout of unsustainably high prices in the first half of 1990 has bearish overtones for demand for the metal such that, alongside weakening economic activity and development decisions at a number of mining projects, the portents are not good for 1991-92,” says the company.

Zinc prices in real terms may average around US47 cents per lb. in 1991 and not do much better in 1992. “The predicted additions to mine capacity in the next three years may mean that the market is held in surplus at least until 1993 when prices could recover to the US50-60 cents per lb. range,” says the company.

As for tin, it may be 1992 and beyond that any improvements take place. Among other considerations, the researchers say mine production is beginning to ease through a combination of producer cutbacks and disruptions at Brazilian operations. In real terms, the price of tin is not expected to average more than US$3 per lb. this year.