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Global Base Metals Review November, 2005

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Base metals prices have entered
the fourth year of a bull phase
which commenced in the third
quarter of 2002 - with some of
them reaching an all time high. The
IRM (Industrial Raw Material) Index,
which tracks prices of the all LME
traded metals, has gone up by
about 75 percent since 2002. The
growth has been contributed by
demand-supply fundamentals and
future expectations.
One of the longest and
strongest global economic
expansion in emerging markets
as well as the OECD countries
has pushed up metal
consumption to unexpected
levels in 2003 and 2004. This
momentum has, however, come
down in 2005.
On the supply side, years of
under-investment in capacity
expansion, lags and structural
shortages resulted in gradual
reduction of stock levels.
Further, there has not been any
serious investments in green-
field projects and quality
enhancement in the supply
chain.

But the same is not likely to
continue as the demand-supply
gap is shrinking. It is however
expected that as more projects are
completed, fresh demand of base
metals will dampen by the end of
2006-07. At the same time, a
number of mining and green-field
activities are set to be
commissioned by 2007, resulting in
a faster production growth and
inventory build-up.

Metals Review

Aluminium
World production of primary
aluminium in 2005 is estimated
to be about 33 mn tones, higher
by 2.5 mn tones than in 2004.
Global smelter capacity
utilization at an average of 92
percent in 2005 is expected to
grow in 2006.
o There is some idle
capacity especially in the
US Pacific Northwest
zone. Also investment is
low with concerns over
rising alumina and energy
prices. But a substantial
capacity addition of
around 5 mn tones a year
is planned by 2008.
Growth in the global demand
for primary aluminium has
slowed down to 4.5 percent in
2005 compared with 8.3 percent
and 10.1 percent in 2003 and
2004 respectively.
o In US, demand growth
was strong in the first half
of 2005, but slowed down
due to hurricanes in the
second half.
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o Export led revival in
J apanese industrial
production poses a
strong demand for the
metal, but deceleration is
a concern.
o The Chinese market is
driving the global
demand of primary
aluminium and other
downstream products
with a growth rate of
around 20 percent.

Copper
Production in 2005 is estimated
to be around 14 mn tones
against the forecast of 17 mn
tones.
o Several interruptions to
production lines caused a
major setback this year.
Strikes and bankruptcy
hit the mining and
smelting operations in
US, Canada and Mexico
while lack of diesel hit
production in Zambia.
Grade flexing, equipment
shortages and rebuilding
of smelter stock piles also
contributed to the
shortfall.
Growth in demand has slowed
down since 2003. Usage of
copper in US, J apan and Europe
in the first half of 2005 was
down by 10 percent y-o-y.
Chinas demand has been
particularly weak with slow
growth in exports of plumbing
and air-conditioning equipment.
Due to the high price of copper
especially in the fabrication
sector, substitution is taking
place with plastics, which is a
low cost input. Increased use of
scrap and de-stocking of the
copper semis are also
contributing to the dampening
process. A revival in the end-
users segments like motor
manufacturing and plumbing
will be crucial in revamping
growth in copper demand.

Zinc
Growth in demand in the first
half of the 2005 slowed by
1.3 percent y-o-y.
o This was caused by a
cutback by galvanized
steel mills production
and adjustment in the
inventory levels. In
China, a 40 percent
growth in galvanized
steel production has
led to a 10 percent rise
in the zinc demand
compared to last year.
Chinas turning to a
net importer of zinc
from a net exporter
has created a global
deficit of the metal.
Zinc stocks remained much
below the perceived
minimum level, particularly
in the concentrate stage.
Many big suppliers of
concentrate from Peru have
been struggling to meet their
production targets, while
shrinking stock position of
concentrate and low
treatment charges are
putting smelters especially in
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Europe to continue with the
business.

Nickel
Nickel output has been
rapidly rising since 2000.
Expansion in mining
activities, treatment facilities
and reactivating units have
added to the increasing
stock.
World consumption was
higher than that in 2004
fuelled primarily by the
Chinese demand.
o A significant reduction
in stainless steel
demand has resulted
in a number of steel
works cutting back
production, which led
to low demand of
virgin ferronickel and
nickel bearing scrap.
o However, it was
noticed that nickel
consumption in non-
steel application has
grown steadily and
will continue the
trend.
























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Disclaimer: This report has been prepared by the Knowledge Management Department of NCDEX Limited. The views
expressed are personal and could be impressionistic and may not necessarily reflect the views of NCDEX. The facts
are reported from publications and have not been checked for authenticity. NCDEX will not be responsible for any
decision taken by the reader based on this report. For any clarifications please contact:
Surojit Sen: Economist: 91-22-5640 6689