LATIN AMERICA SPECIAL — Metal prospects bleak, says think

Prospects for a recovery in demand for most industrial raw materials have faded outside the United States, says the latest Economist Intelligence Unit (EIU) World Commodity Forecast.

“Hard commodities, and base metals in particular, will remain in surplus. Demand is recovering, but more slowly than forecast. Supplies of lead, nickel and zinc, including exports from the CIS are running at a high level,” says the EIU report.

Not even in the face of “voluntary and involuntary cuts” are aluminum prices expected to get better. “The aluminum market will remain oversupplied throughout 1993,” stresses the report. A change in the balance of supply and demand is not expected to occur until the end of the first half of 1994 — at the earliest.

EIU expects Western primary aluminum consumption to grow in 1993 by 3.3% and to accelerate slightly in 1994. European production will be lower and globally output will reduce by 150,000 tons.

Prices will “remain stuck in the US$1,200-US$1,275 a ton range though 1993, with a rise towards US$1,400-US$1,500 starting in 1994,” it says. Encouraging economic signals from the United States and discouraging ones from Europe and Japan have had some impact on copper’s value, says EIU. But “shifting exports from the former Soviet Union and imports by China have had a far more important influence on market mood.”

For the rest of 1993 and 1994, there will be a gradual improvement in prices, argues the report. An upward price is dependent on growing U.S. demand. A price projection of US$1.065 per pound is given by EIU. In 1994 it sees further upward price movements as demand expands.

“Long term, current prices will be hard to maintain. Significant growth in capacity is expected.”

Lead supply is expected to move into deficit in 1994 after a small surplus in 1993. But weak demand has forced EIU to lower its price forecast. It does believe, though, there is room for improvement. Present values are 20 cents per pound, and prices are expected to rise to 25 cents per pound during 1993, and 30 cents per pound in 1994.

“The nickel market remains oversupplied, but a tighter scrap market is stimulating demand for primary nickel,” says the report.

Recent cuts have brought some balance into the price equation and long-term demand from stainless steel production could boost demand for nickel. A price of US$3.52 a pound is forecast for the end of 1993, with prices rising to US$3.73-US$3.80 a pound in 1994.

Tin supply will experience a “further heavy deficit” in 1993, but the shortfall will be made up with the release of strategic U.S. stocks. This will pressure prices but output will still be below demand. Prices are expected to reach US$3.34 a pound by December 1993 and US$3.50 a pound by 1994.

The continued rise in London Metal Exchange (LME) warehouse zinc stocks has been a “key bearish influence,” explains EIU. The Unit is

more pessimistic than two months ago and there is now unlikely to be much improvement in the zinc prices before 1994, it says.

— From Inter Press Service.