WHY METAL PRICES KEEP GOING UP?

Metal Finishing, November 2006.
From an article by Reginald E. Tucker, Editor, "Coatings Suppliers, Chemical Makers see China as the Next 'Gold Rush.'"

According to Polly Yam, an authority on the subject, China - which is already a powerhouse behind record-high prices of most base metals in 2006 - is expected to be the engine pushing up world consumption next year. According to her report, the Chinese economy, the world's fourth-largest, expanded 11.3 percent from a year earlier in the April-to-June quarter, despite Beijing's curbs on investment and exports. Annual industrial output, an indicator for metals consumption, rose 15.7 percent on the year in August. That double-digit rise, analysts say, will almost certainly result in an increase in metals almost across the board in 2007 - enough to provide a major offset to a slowdown in other regions of the world.

Yam's report cited more evidence in support of this forecast. Heng Kun, Shanghai-based analyst for Everbright Securities, said copper consumption in 2007 would strengthen because of strong demand from the power sector and infrastructural projects such as facilities for the 2008 Olympics in Beijing. (Observers put China's annual copper demand at 3.6 million tones.) Analysts are also gauging increased consumption of alternate metal, such as aluminum and stainless steel, with growth of the former material projected to be in the 15-percent range next year. This is due in part to demand from China's automobile, construction, and rail sectors.

While impressive, those projections could be down significantly from the estimates for 2006. According to Yam's report, China's apparent consumption of primary aluminum in the first seven months of 2006 surged 35 percent from a year earlier. With the output of semi-fabricated aluminum products rising 32.9 percent during the same period, the demand for primary aluminum may surpass 30 percent for all of 2006.

Just as China's growing demand for oil led to world-wide increases petroleum-based products, the country's fierce appetite for metals could have the same effect on metals pricing. Many industry analysts are in agreement that robust economic growth and rising infrastructure spending in China will boost prices of base metals, namely copper, zinc, and nickel-possibly pushing them back toward recent highs before the end of 2007. However, demand will largely hinge on activity in the United States, where growth is expected to slow rather than slump.