NONFERROUS METALS

Vyacheslav POPOV, expert with DerzhZovnishInform

Global market

Aluminum

December 1999, when the average monthly aluminum price rose all the way to USD 1,554.8 per tonne (i.e. USD/tonne 80 up from the average monthly price in November 1999), set the new record price of the past two years.

During the period under review, aluminum prices ranged from USD 1,514.5 per tonne to USD 1,630.5 per tonne. Furthermore, the new and the final record-high 1999 aluminum price of USD 1,630.5 per metric was registered on December 30, i.e. on the last trading day at the London Metals Exchange.

The spot market for A380.1 aluminum alloy also responded to the year-end events. Average monthly price for this commodity settled at USD 1,304.7 per tonne, which is an absolute record for the past couple of years. In December 1999, prices for A380.1 aluminum alloy ranged within USD 1,268-1,358 per tonne. Just like in case of aluminum, the greatest price was set on December 30, 1999.

Naturally, recovery in Southeast Asia and favorable economic situation in European countries and in the USA called forth the mark-up in prices for aluminum and aluminum alloys.

The increase in aluminum prices was forecast a while ago. Besides, prices for alumina (which immediately respond to behavior of aluminum prices) skyrocketed, thus encouraging the further growth in aluminum prices. Besides to increase in aluminum prices and some other technical factors, the rise in alumina prices was brought about by railwaymen strike in western Australia, which virtually paralyzed alumina transportation to Australian ports (Australia is one of the largest suppliers of this raw material in the world), and by closedown of a large factory in Gramercy.

Major market players were reluctant to name the key factors, which caused the price recovery on the spot market. However, besides to the global macroeconomic factors, most players on the European and US spot aluminum markets mentioned reduction in aluminum supplies from Russia (CIS countries) as the main reason for the price mark-up in late December 1999. Russian exporters were unwilling to export aluminum to the USA owing to large aluminum premiums FOB St. Petersburg and high freight rates. Southeast Asia was still the most popular destination point for export supplies in December 1999. At the same time, certain players on the US aluminum market revealed that there were certain difficulties with aluminum supplies from Venezuela.

As of December-end, premiums for CIS-made aluminum in Rotterdam remained pretty much unaltered and ranged within the following limits:

• USD 15-20 per tonne of A5 aluminum;

• USD 25-30 per tonne of A6 aluminum;

• USD 32-38 per tonne of A7 aluminum.

Outlooks for aluminum market

As time goes by, the leading global analysts and market players are becoming more optimistic in their forecasts for aluminum market in 2000. Previously, the majority predicted that average LME aluminum prices will amount to USD 1,600-1,675 per tonne given the favorable situation in Europe, the USA and recovery in Southeast Asian economies. Now the leading analyst and trading companies mention the new prices of USD 1,550-1,800 per tonne in their latest reports.

However, the most possible average prices for aluminum will roughly equal USD 1,650 per tonne in 2000.

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

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

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

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

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

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

Copper

Just like aluminum, on December 30, 1999, the LME copper prices finally reached USD 1,846 per tonne, which is the absolute record-high for 1998-1999. Average copper price in December amounted to USD 1,764.75 per tonne, i.e. almost USD/tonne 40 up from the November’s average. Copper prices ranged within USD 1,708-1,846 per tonne in December.

During the recent period of rapid price growth, the pattern of copper market has changed irrevocably. As a result, the overall number of market players went down, while the number of large players increased.

The market has strong demands for copper, which similarly to aluminum originate from the auspicious economic situation in Western Europe and North America, as well as from recovery of Southeast Asian economies after the crisis. Reduction in global productive capacities in the first half of 1999 and in mid-1999 also spurred the demand. As a result, the market even saw some shortage of copper. However now, when the prices are moving up swiftly, it is anticipated that idle capacities will recommence functioning. In turn, this may once again cause oversupply of copper on the market, which can suppress the prices.

Nevertheless, demands for copper kept on increasing in the end of 1999 and this market once again became a lucrative piece for profiteers. This is promising to be yet another factor encouraging the increase in copper prices in 2000.

Outlooks for copper market

Forecasts for the copper market situation are still quite rosy despite the threat of new copper mining and processing capacities being put in operation. Quite a few experts believe that demand will keep on recovering. However, the year 2000 may see both shortage periods and oversupply times. There are made forecasts that the situation on the copper market will be rather balanced, though the end of 2000 may witness a slight shortage of copper and prices in the second half-year will be somewhat lower than in the first half of 2000. As a consequence, there is a true threat that laid up capacities will recommence functioning and new capacities will be put into operation.

Predictions for average copper prices fluctuate around USD 1,750-2,000 per tonne, which means that the high estimate will be further increased.

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

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

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

UKRAINE

Foreign trade in nonferrous metals and commodities

Funny as it may seem, but the Ukraine’s State Statistics Committee reports that in 1999 Ukraine exported 40.82% more physical nonferrous metals and their products than in 1998 and earned 17.41% more export revenues than in 1998. And all this actually happened despite the quite difficult situation in nonferrous exports in early 1999, despite all the amendments and alterations of the trade law.

In 1999, Ukraine exported some 552 ths. metric tons of nonferrous metal and nonferrous products worth almost USD 562 mln. To compare, in 1998 Ukrainian exports of these metals and products amounted to 392 ths. metric tons for the total of USD 479 mln.

Throughout the year, copper and aluminum commodities stably made up 88.80% of the total physical exports of nonferrous metals bringing in 88.87% of export revenues as compared to 89.80% and 84.19% respectively in 1998. The disparity of 1998 export figures originated from the Southeast Asian crisis, when prices of basic metals hit the absolute record-low of the past few years, consequently slashing export revenues.

The 1999 physical exports of aluminum and copper increased by 39.25% against 1998, while export revenues rose by 23.93%.

By the year-end, Ukraine exported 40.71 ths. metric tons of other nonferrous metals (save for nickel, lead, zinc and tin), cermets and their products (i.e. 7.38% of the total nonferrous exports) worth USD 33.63 mln. (5.98% of the total). Thus, exports of these types of nonferrous metals were not subject to any cardinal changes.

Nickel, lead, zinc and tin yielded USD 4.1 mln. of export revenues (i.e. 0.73% of the total revenues from nonferrous exports), which is thrice as low as the 1998 figure of USD 12 mln. Such a considerable difference roots in greater export supplies of nickel and nickel products in 1998. In 1999, physical exports of these four metals dropped tenfold against the 1998 figure.

Copper group

In 1999 Ukraine exported 134.29 ths. metric tons of copper and copper products worth USD 135.8 mln. This is 26.24% greater than the 1998 physical exports of copper and its products and 11.27% greater than the respective 1998 export revenues.

It is especially evident that the 1999 portion of exports of refined and unrefined copper and copper alloy ingots skyrocketed compared to 1998. Back in 1998, Ukrainian companies exported 2,212 metric tons of unrefined copper worth USD 2.7 mln. and 9,048 metric tons of refined copper and copper alloys worth USD 10.68 mln. In 1999, exports of unrefined copper increased to 28,906 metric tons (1,306.92% compared to the 1998 physical exports) worth USD 29.5 mln., while export supplies of refined copper and copper alloys grew to 22,110 metric tons (244.38% against 1998) worth USD 23.5 mln. This export phenomenon sprang from the June 1999 law "On scrap metal", which banned exports of nonferrous scrap. Thus, scrap exporters commenced remelting copper scrap into copper and copper-based ingots. As a consequence, the 1999 copper scrap exports lowered by some 17% against 1998 and yielded 32.28% fewer revenues than in 1998. In fact, Ukraine exported 76.1 ths. metric tons of copper scrap for the total of USD 68.9 mln. in 1999 (91.8 ths. metric tons worth USD 101.7 mln. back in 1998).

Nevertheless, regardless everything, copper waste and scrap remained the largest export article in the total copper exports.

Aluminum group

Aluminum exports were the keystone of the 1999 increase in nonferrous exports. Aluminum and aluminum commodities contributed 57.03% to the overall nonferrous exports and brought in 57.41% of the total revenues from nonferrous exports. In 1999, Ukraine exported 356 ths. metric tons of aluminum and aluminum products worth USD 364 mln., while the year of 1998 saw exports of 245.5 ths. metric tons of these commodities for the total of USD 281 mln., which means that the 1999 physical exports were 44.89% greater and the 1999 export revenues were 29.43% higher than the 1998 figures.

Primary aluminum ingots and crude aluminum alloys contributed the bulk to the total aluminum exports making up 88.48% of the total physical exports of aluminum commodities and yielding 88.72% of export revenues. In 1999, Ukrainian firms exported 314.7 ths. metric tons of primary aluminum ingots and unrefined aluminum alloys gaining USD 323 mln. in return.

The year of 1999 saw exports of 36.23 ths. metric tons (76% compared to the 1998 figure) of aluminum scrap worth USD 31.4 mln. (80.91% compared to 1998). Like in case of copper scrap, aluminum scrap exports lowered after the Ukrainian law "On scrap metal" became effective. Since aluminum scrap exports are prohibited, this commodity is now remelted into secondary aluminum alloys and aluminum metal. Although, some aluminum scrap supplies managed to escape from Ukraine under tolling contracts.

Distinctive features of export supplies

The year of 1999 saw the largest exports of the following nonferrous metals and commodities:

• unrefined aluminum and unrefined aluminum alloys – 314.69 ths. metric tons (57.03%) worth USD 322.63 mln. (57.41%);

• copper scrap and waste – 76.08 ths. metric tons (13.79%) worth USD 68.84 mln. (12.25%);

• aluminum scrap and waste – 36.23 ths. metric tons (6.57%) worth USD 31.4 mln. (5.59%).

Regional distribution of export supplies

In 1999, Germany ranked the first in imports of copper commodities from Ukraine consuming 88.74 ths. metric tons of copper and copper products (i.e. 66% of the total Ukrainian copper exports) worth USD 88.25 mln. (65% of the total). Belgium remained the second largest importer consuming 16.46 ths. metric tons of copper commodities (12.26% of the total) worth USD 16.41 mln. (12.09%), while Italy came third with imports of 3.64 ths. metric tons (2.71% of the total Ukrainian copper exports) for the total of USD 2.88 mln. (2.12%).

Like ever before, Russia and Belarus were the unrivaled importers of Ukrainian copper commodities among CIS member-states. In 1999, the Russian Federation imported 4.81 ths. metric tons of Ukrainian copper commodities (3.58% of the total) worth USD 8.44 mln. (6.21%) and Belarus imported 2.30 ths. metric tons (1.72%) for the total of USD 4.39 mln. (3.23%).

The USA consumed 70 ths. metric tons of Ukrainian aluminum commodities (19.68% of the total aluminum exports from Ukraine) worth USD 66.27 mln. (18.22%), thus securing itself the title of the largest importer of Ukrainian aluminum. The USA was followed by Italy – 45.23 ths. metric tons of Ukrainian aluminum commodities (12.72%) worth USD 47.33 mln. (13.02%); the Russian Federation – 43.13 ths. metric tons (12.13%) worth USD 58.52 mln. (16.09%); Hungary – 37.07 ths. metric tons (10.42%) worth USD 46.32 mln. (12.74%) and Germany – 31.89 ths. metric tons (8.97%) worth USD 29.68 mln. (8.16%). It is worth pointing out that Japan ranks the sixth on the list of importers of Ukrainian aluminum. This country is recovering after the financial crisis and enlarges purchase orders for raw materials, including aluminum and aluminum alloys. In 1999, Japan imported 29.13 ths. metric tons of Ukrainian aluminum commodities (8.19% of the total) paying USD 30.9 mln. (8.50%).

Conclusions

One can easily guess that the wrapping up conclusions will not be much different from conclusions of the previous months of 1999.

Firstly, raw materials and semis keep making up a formidable portion of nonferrous exports.

Secondly, Ukrainian nonferrous industry cannot offer much besides aluminum and copper commodities.

Thirdly, the regional pattern of nonferrous exports from Ukraine has been unaltered. The same 6-8 countries from Western and Eastern Europe, as well as Japan and Russia, consume the bulk of Ukrainian nonferrous metals.

Fourthly, one should notice a year-to-year increase in export turnover of nonferrous metals, which gradually exhausts Ukrainian nonferrous inventories. Well, local Ukrainian nonferrous companies will desperately require these inventories in their current attempts to get the things going, to humbly enter foreign markets and to satisfy some of the domestic demands with their commodities.

Fifthly, a portion of the desired export revenues simply vanishes because the main traders in nonferrous business are offshore companies or small-size and medium intermediary companies operating in Western and Eastern Europe.

It would take a while to mention all the peculiarities of Ukrainian trade in nonferrous metals. However, the aforementioned is quite enough to recognize that most Ukrainian nonferrous exporters use the primitive rule-of-thumb approach.

In 2000, one should anticipate new strict measures against exporters of nonferrous metals. Considering the diminishing inventories of raw nonferrous metals, this should either lower nonferrous export turnover or at least slow down the export dynamics.

We shall see what we shall see, but it looks like the most interesting things are yet to come.

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