Outlook favourable despite increased concerns about metal markets

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Metal and mining sector industry

Weak macro data from Europe and China are causing concern about the future demand for industrial metal. Fundamentally, the situation in the steel sector seems to remain relatively poor in most regions for now, though encouraging economic outlook and shortages on base metals markets mean positive price projections

Weak macro data from Europe and China depressing the mood on the metal markets

The uncertainties surrounding the demand for metals have increased during Q2 and Q3 of 2014. Despite the recovering US economy, concerns have increased about economic development in China and Europe. Nevertheless, ABN AMRO expects that the Chinese government will take whatever steps are necessary to realise its growth targets for this year. Growth also slowed down in Europe, in part owing to the crisis in Ukraine and the mild weather in the year’s first quarter. Industrial production also fell short of expectations, owing to a drop in external demand. In spite of these factors, though, the fundamental economic situation appears to indicate that Europe will achieve a modest recovery this year. A stronger global economy and the falling euro should boost growth in the industrial sector in the eurozone during the coming months. This scenario will carry over favourably to the metal markets.

Prices of steel and copper under pressure since early 2014

 Price movements in the steel sector have not been encouraging so far this year. With demand low and supply plentiful, prices are being forced down in most regions. Prices have remained stable in the Commonwealth of Independent States (CIS) and in the United States, while steel has become cheaper in Europe and China. In Latin America, however, where demand is high, prices are up 3.5 percent. Early in Q3 the situation began to show signs of improving. Although prices continue to fall in Europe, the worst appears to have passed in other regions, where prices seem to be stabilising or even tentatively rising. Global production activity is increasing and the construction sector is recovering, particularly in the US, where prices will likely continue to climb. In other parts of the world, however, the situation in the steel sector remains relatively weak. In China, where capital expenditure on real estate is diminishing, the demand for steel is relatively low. The economies of Europe and Latin America have worsened, and this will eventually carry over to the steel sector. Prices for raw materials used in steel production have plummeted: iron ore has fallen 38 percent since the beginning of 2014, and coking coal 23 percent. In both markets oversupply has forced prices down. Prices for base metals show a different trend, however: only copper has fallen since the beginning of 2014, while aluminium, nickel and zinc are up. The best performer among the metals is aluminium, with significantly higher prices, followed by zinc. Copper and nickel are under pressure from geopolitical developments, regulations and the poor macro data from Europe and China.

Global steel prices to remain stable, prices for base metals set to climb

ABN AMRO assumes that the European economy will gradually recover, that China will realise its growth ambitions and that the US economy will continue to improve. Worsening macro data from Europe and China are generally not an encouraging scenario for the demand for industrial metals; yet here, given the need for economic growth, they may lead to stimulus measures. As a rule, such measures boost demand for industrial metals. Nevertheless, ABN AMRO expects global steel prices to remain stable in Q3 and Q4, despite any stimulus packages: for the time being the steel markets will continue to feel the effects of overcapacity in Europe and China. ABN AMRO also believes that oversupply will likely keep prices for raw materials used in steel production down, though prices for base metals should continue to rise until the end of 2014. ABN AMRO expects that aluminium and zinc will again be the best-performing metals in H2 and that the demand for copper (particularly from China) will remain solid.

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