Yet again defying consensus predictions of a slowdown, metals demand appears to have accelerated in the first two months of 2004.
Chinese copper imports reached an all-time record high in February, and developments in Chinese trade for most of the base metals are also pointing at tighter Western World markets and higher prices. The customs statistics for February show that Chinese net refined copper imports is accelerating, while net exports of zinc are falling rapidly. Furthermore, this improvement in net trade comes despite higher Chinese base metal output over the same period. We believe these price-supportive Chinese trade patterns reflect an acceleration in domestic demand, high domestic premia, and a reduction in export tax rebates from January.
We are especially upbeat about the price prospects for zinc in the coming months. Not only are Chinese net exports declining swiftly, but Western World supply-and-demand fundamentals are also improving, according to the latest report from the International Lead & Zinc Study Group. Finally, investors may also be attracted simply because zinc been a relative underperformer in the current upturn. In the previous commodity price cycle, the peak in zinc was muted partly because of Chinese metal flooding the market — a feature that is now clearly less of an obstacle.
Trends in Chinese trade for nickel and aluminum are less encouraging. Despite some curtailments in primary aluminum production in response to high alumina prices and power constraints, large quantities of aluminum continue to be shipped from China. Arguably even more dramatic has been the slowdown seen in net imports of refined nickel for China’s stainless steel mills. We think this is a reaction to high nickel prices and the impact of the increased use of manganese for the production of lower-quality stainless steel.
The latest Chinese metal trade data are in line with our expectations of base metal prices trading strongly in the first half of the year, with seasonal demand expected to accelerate in the second quarter and with increased supply not expected until later in the year. Hence, we expect base metals to achieve their intra-year peaks in this half of the year, before weakening from these heights during the second half of 2004.
In the first two months of the year, Chinese net exports of primary
Despite high alumina spot prices, alumina imports were 23% higher at 788,000 tonnes in January-February, while low scrap imports (-1.9% year over year, at 107,800 tonnes) are a reflection of a tight market for secondary aluminum.
We would expect recent Chinese production curtailments in response to high alumina prices and power constraints, plus strong domestic demand, eventually to lead to a slower rate of primary exports.
Chinese
Copper-in-concentrates imports were 13.2% higher in the first two months at 453,300 tonnes, while scrap imports remain subdued (-0.7% year over year) at 497,000 tonnes in a tight market (though there are now some signs of improved scrap availability in Europe).
China remains a net exporter of
In response to high
Gross imports were a modest 3,400 tonnes in February (the lowest since July 2002). Gross exports of 2,500 tonnes (about double the size of recent monthly data) could be a sign that Chinese stainless steel producers have been accumulating too much nickel over the past year and are now retuning some in the current high price environment.
Although China is a net exporter of refined
China was a marginal net importer of refined
Despite concentrate tightness, China managed to import 47% more zinc-in-concentrates in the first two months of the year, at 126,900 tonnes.
— The opinions presented are the authors’ and do not necessarily represent those of the Barclays group. For access to all of Barclays’ economic, foreign-exchange and fixed-income research, go to the web site at barclayscapital.com. Queries may be submitted to the authors at ingrid.sternby@barcap.com and kamal.naqvi.com
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