NONFERROUS METALS

Vyacheslav POPOV, expert with DerzhZovnishInform

global market

Aluminum

In October-November 1999 the market for aluminum gained some stability, which could not help influencing the level of prices for this metal. In average, during the two last autumn months aluminum prices virtually did not change. In October the average level of LME quotations for aluminum settled at USD 1,474.79 per metric ton. In November the scenario was nearly the same – USD 1,473.09 per metric ton. However compared to September, which was the month of record prices for 1999, these average monthly figures eased by nearly USD 18.0 per metric ton. This originated from the weakened agiotage on the market registered back in September, as well as from a number of technical factors. However, as a result of narrowed stocks, the LME prices could steadily keep at this level.

The prices for aluminum fluctuated within USD 1,448.0-1,500.5 per metric ton in October and USD 1,438-1,522 per metric ton in November. Spot prices for А380.1 aluminum alloy ranged within USD 1,242-1,293 per metric ton in October and USD 1,229-1,285 per metric ton in November. Average prices for this alloy settled at USD 1,267.71 per metric ton and USD 1,258.86 per metric ton respectively.

Primarily, during this period attention of market operators was concentrated at the merger of industrial aluminum giants Alcan-Pechiney-Algroup (APA) and to the Alcoa-Reynolds acquisition agreement. In regard to the key market tendencies, one can say that both demand and supply keep on intensifying supported by favorable economic situation in Asia. The optimism mainly originates from improvement of the situation in Japan, which was the last to overcome the economic crisis started back in mid-1997.

Another key factor of weighty impact on the aluminum market is shortage of raw materials, specifically of alumina. According to the leading traders and manufacturers of aluminum, this problem does not substantially threaten those producers, who have arranged the production expansion beforehand, built up proper stocks to implement these projects and simultaneously retained business contacts with reliable suppliers of feedstock. At the same time, all the other producers should think of stepping up production output. The observed scenario was also unfavorable for those, who purchase alumina on the spot market, since the threat to lose stable feedstock supplies remains quite possible.

Aluminum premiums in Europe and CIS member-countries kept on moving upward in October in the wake of strengthening demand on the European continent.

As of the end of November the level of premiums for CIS-made aluminum in Rotterdam was as follows:

А5 aluminum – USD 15-20 per metric ton;

А6 aluminum – USD 25-30 per metric ton;

А7 aluminum – USD 32-38 per metric ton, up by USD 3-5 per MT against the September level.

As for the balance of supply and demand for this metal, the level of demand for aluminum exceeded all expectations of market operators. Taking into consideration the increasing premiums for aluminum, along with advancing supply of this metal to the European market under customers’ orders, according to the estimates of Metal Bulletin experts, growth in aluminum consumption in 1999 will reach 3.3% while the previous forecast of these experts gave the figure of +2.9%. In 2000, further 3.6% growth is expected.

According to the data with the International Primary Aluminum Institute (IPAI), in September 1999 global production of aluminum expanded by 4% against the respective period of 1998. In September, global average daily output of aluminum amounted to 56,800 tons, which surpassed the respective 1998 figure of 54,600 tons. In September 1999 the total production of aluminum equaled to 1,705 mln. tons, 66,000 tons up from September 1998.

According to the latest official data, in the first 9 months of 1999, Russia – one of the major world manufacturers of aluminum – reported a 10.9% increase in aluminum export turnover against the year 1998 (all the way to 2,038 mln. tons). At the same time, output of this metal in Russia rose by 108,000 tons (4.8% up) to 2.34 mln. tons.

Table 1. LME aluminum quotations in 1997-1999 (January-November), USD per metric ton (USD per MT)

* — hereinafter prices in futures contracts stipulate for supplies in three months

Table 2. Average LME aluminum prices in 1995-1999 (January-November), USD per MT

Table 3. Average LME prices for А380.1 aluminum alloy in 1995-1999 (January-November), USD per MT

Table 4. LME quotations for А380.1 aluminum alloy in 1997-1999 (January-November), USD per MT

Table 5. Dynamics of LME prices for aluminum in 1997-1999 (January-November), USD per MT

Table 6. Dynamics of LME prices for А380.1 aluminum alloy in 1997-1999 (January-November), USD per MT

* — hereinafter prices in futures contracts stipulate for supplies in three monthsOutlooks for aluminum market

Forecasts of the world analysts and traders mention a favorable tendency on the aluminum market in the forthcoming months. Taking into consideration the reduction in alumina supply to the world markets, along with strengthening demand for aluminum (a 4% recovery of demand is anticipated in Europe), some analysts believe that at the beginning of 2000 the market will be well balanced. However, the market might also see some shortage of aluminum.

According to expert forecasts, in 2000 average price for aluminum will settle at USD 1,600-1,675 per metric ton. Most experts believe that average price for aluminum will equal to USD 1,600 per metric ton, which is nearly USD 250 per MT greater than the respective 1999 figure.

Copper

Having decreased by USD 25.0 per metric ton in October (against the September level), the average level of copper prices stopped at USD 1,724-1,727 per metric ton in October-November 1999. In October LME quotations for copper fluctuated within USD 1,653-1,765 per metric ton. In November the range of quotation fluctuations somewhat narrowed to USD 1,684-1,751 per metric ton. In October decrease in copper prices took place as a result of hedging funds closing their long positions in order to settle for short positions on the market for gold. Besides, in October stocks at the LME warehouses increased by nearly 30,000 tons.

Nevertheless, the prices still keep at a suitable level due to stable consumption (in particular, in the USA) and due to decrease in production, which was registered in the first half of 1999 and in mid-1999. In the first 7 months of 1999 the level of copper consumption in the USA increased by 1.1% against the respective period of 1998 and amounted to 1.74 mln. tons.

Although in the last autumn months copper stocks at the LME warehouses in Singapore did become greater, this did not hit the market dramatically since Southeast Asia surmounted the crisis period and the engine of economic development of this region speeds up once again. The South Korean economy holds the leadership in this upturn process. Taiwan follows practically in line. In the first 7 months of 1999 the level of copper consumption in South Korea moved up by 13% against the respective period of 1998. It is worth mentioning that the economy of Japan faces the most difficulties in its recovery. However, obvious signs of recovery witness that the country will reach the pre-crisis level in the near future. This will undoubtedly have a positive impact on development of the copper market. Intensification of copper consumption keeps on in Europe, particularly in Germany and Italy. China continues active imports of copper as well, which gives optimism to the copper market operators.

Along with forecasts for reduction in production capacities in the world (in particular, after the merger of huge companies in North and South America), there is more and more information that new capacities are about to be commissioned in Chile (Los Pelambres copper mine with capacity to extract 250,000 tons per year and with available ore reserves of 2.42 mln. tons). In the nearest future, the new capacities will be also commissioned in Indonesia. In January 2000, the new copper and gold mine will be put in operation. Capacities of this mine will enable extracting 150,000 tons of copper-based ore annually. At the same time, in the second half of 2000 Indonesia plans to put into operation a mill to manufacture refined copper with the capacities to manufacture 200,000 tons of this product per year.

Table 7. LME copper quotations in 1997-1999 (January-November), USD per MT

Table 8. Dynamics of LME prices for copper in 1997-1999 (January-November), USD per MT

Table 9. Average LME prices for copper in 1995-1999 (January-November), USD per MT

Outlooks for copper market

* — hereinafter prices in futures contracts stipulate for supplies in three months

The estimates for copper consumption are still optimistic owing to continuation of economic growth. However, the prices for copper will fluctuate depending on how strong the copper stocks will increase or narrow.

The situation does depend on commissioning of new capacities. The market will be unable retaining high prices unless a substantial decrease in production is undertaken. According to the estimates of Metal Bulletin experts, until the end of 1999 the copper prices will increase to USD 1,750-1,800 per metric ton.

UKRAINE

Foreign trade

In the 11 months of 1999, export turnover of nonferrous metals and products from them increased by 39.17% against the respective period of 1998. At the same time, earnings from export of these products (denominated in foreign currencies) grew by 16.01%. Physical exports of nonferrous metals from Ukraine amounted to 491 ths. tons and export earnings – to USD 498.4 mln. Percentage of copper and aluminum products in the total Ukrainian exports of nonferrous metals indicated 88.3%. Currency earnings from copper and aluminum exports amounted to 88.73% of the total currency earnings from export of nonferrous metals, which evidences a stabile situation in exports because in the first 9 months of 1999 the respective figures were 88.33% and 88.53%. Against the respective period of 1998, physical exports of aluminum and copper moved up by 36.78% and currency earnings gained 21%.

Percentage of currency earnings from exports of other nonferrous metals (except for nickel, lead, zinc and tin), cermets and products from them kept on increasing to 7.93%, while in January-September this indicator was 6.82%. Currency earnings from export of such metals as nickel, lead, zinc and tin totally made USD 3.47 mln., that is 0.7% of the total currency earnings from exports of nonferrous metals from Ukraine. This somewhat exceeded the respective figure of the year 1998 (USD 3.38 mln).

Table 10. Export dynamics of nonferrous metals and their products in January-November 1998-1999

Copper group

In January-November 1999, Ukraine exported 118.88 ths. tons of copper and copper products worth USD 122 mln., which exceeded the respective 1998 figures by 22.06% and 9.33%. In October and November export of unrefined copper equaled to 5,991 tons for the total of USD 4.98 mln. In November export of copper alloys amounted to 6,548 tons worth USD 6.69 mln.

In October-November, exports of copper scrap (under give-and-take contracts) indicated 10,728 tons worth USD 8.94 mln.

The main export articles within the copper group are still the same: unrefined copper; copper anodes for electrolytic refining; refined copper and unrefined copper alloys, copper scrap and waste. Export turnover of these commodities, as well as currency earnings from these exports, amounted to respectively 94.21% and 89.0% in the total export of copper group commodities.

Table 11. Main articles of Ukrainian exports of copper and copper products in January-November 1998-1999

Aluminum group

In January-November 1999, physical exports of aluminum group commodities exceeded the respective figure of 1998 by 43.30%. Currency earnings from export of these products surpassed the respective 1998 figure by 26.13%. In January-November 1998, Ukraine exported 219.7 ths. tons of aluminum and aluminum products worth USD 254 mln., while in the respective period of 1999 export turnover indicated 314.9 ths. tons worth USD 320.4 mln.

In the 11 months of 1999, export of unrefined aluminum and unrefined aluminum alloys amounted to 280.06 ths. tons, which is 63.2% up against the respective period of 1998. Currency earnings from export of these commodities equaled to USD 285 mln. This exceeds the respective 1998 indicator by 35.71%.

Percentage of aluminum and aluminum alloys dominates in the total export of the aluminum group commodities. As of the end of November, this percentage indicated 88.94% in the total exports of this group. In September currency earnings from exports of these commodities made up 88.97% of the total currency revenues from export of the aluminum group commodities.

In the 11 months of 1999, Ukrainian companies exported 30.96 ths. tons of aluminum scrap with galvanized coating for the total of USD 27.66 mln., which corresponds to 68.86% and 75.41% respectively of export figures in 1998. In October-November 1999, export turnover amounted to 4.80 ths. tons worth USD 3.82 mln.

Table 12. Main articles of Ukrainian export of aluminum and aluminum products in January-November 1998-1999

Overview of export supplies

In the 11 months of 1999 the largest export supplies were as follows:

unrefined aluminum and unrefined aluminum alloys – 280.06 ths. tons (57% of the total) worth USD 285.01 mln. (57.19%);

copper scrap and waste – 68.54 ths. tons (13.95%) worth USD 53.78 mln. (12.59%);

aluminum scrap and waste – 30.96 ths. tons (6.30%) worth USD 27.66 mln. (5.55%).

Geographical distribution of export supplies

In October-November 1999 there were no significant changes in geographic distribution of export supplies of copper, aluminum and their products. Germany holds the leadership in imports of copper group commodities. In January-November 1999, over 65% of all the copper group commodities were exported to this country, i.e. 77.96 ths. tons worth USD 78.85 mln. (64.69% of the total export revenues). The second largest importer is Belgium – 14.54 ths. tons worth USD 14.60 mln. (12.23% and 11.97% respectively). Traditionally, Italy ranks the third – 3.04 ths. tons worth USD 2.40 mln. (2.56% and 1.97%).

Like in the previous months, Russia and Belarus are the leading copper group commodity importers. Russia imported 4.54 ths. tons worth USD 8.04 mln. (3.82% and 6.60%) and Belarus – 2.25 ths. tons worth USD 4.29 mln. (1.89% and 3.52%).

The major importer of aluminum group commodities was the USA (20.41% and 18.96%, that is 64.25 ths. tons worth USD 60.75 mln.) followed by Hungary – 34.06 ths. tons worth USD 42.45 mln. (10.82% and 13.25%), Italy – 38.44 ths. tons worth USD 40.61 mln. (12.21% and 12.68%), the Russian Federation – 37.69 ths. tons worth USD 50.28 mln. (11.97% and 15.69%), and Germany – 29.70 ths. tons worth USD 27.69 mln. (9.43% and 8.64%).

Table 13. Geographical distribution of Ukrainian exports of copper and copper products in January-November 1999

Table 14. Geographical distribution of Ukrainian exports of aluminum and aluminum products in Jan.-Nov. 1999

Conclusions

Moving closer to the new millenium, the expert forecasts for the nearest future of the copper and aluminum markets are getting more optimistic. Supposedly, this optimism could affect Ukrainian exporters and producers of nonferrous metals as well. Intensification of demand and, subsequently, of the price levels promises additional profits and foreign currency revenues to the Ukraine’s state budget in the forthcoming year of 2000. However, one should consider whether this is correct. On the one hand, respective increase in currency earnings from export of nonferrous metals is obvious. On the other hand, one can see reduction in physical supplies of nonferrous products.

As it was mentioned in previous publications, the volumes of feedstock and raw materials for production of nonferrous semis (the main article of Ukrainian nonferrous exports) are narrowing dramatically.

Increase in global prices will lead to recovery of export prices for these products, which will once again push up the demand for nonferrous scrap metal (used in production of highly saleable products). On the other hand, shortage of scrap, along with global recovery of prices for nonferrous metals, can increase the prices for this feedstock even greater, which will lower profits as a result of the narrowed spread between prices for scrap and end products.