Base Metals Market Briefing - July 21, 2008

Revised base metal supply-demand balance and price projections

In this month’s detailed report of the Base Metals Market Briefing, analysts at GFMS Metals Consulting have amended their supply-demand balance forecasts for 2008 and extended them to 2009. Given the extreme price volatility in the base metal sector so far this year, the changes to our price forecasts for 2008 are surprisingly small, with our projections for aluminium, copper and zinc largely unchanged.

As we have highlighted in recent issues of the Base Metals Market Briefing the two main features are the dangers posed to the sector by stagflation, and the on-going battle between supply disruptions and weak demand. Stagflationary fears are going to remain a feature for some time and will not disappear due to a temporary correction in the oil price. It should be remembered that inflationary pressures are greatest in the emerging economies, which are, of course, the key drivers behind demand growth for the base metals.

Our analysis of the semis sector points to continued weakness within the downstream markets. Much of the weakness is focused on production destined for the residential construction sector - aluminium extrusions, copper tube and wire are particularly exposed. However, the downturn in auto sales in the mature economies and the slow spread of the weakness in residential to non-residential markets is also affecting aluminium flat-rolled markets, galvanized steel and lead demand. The weakness in the stainless steel market partly reflects earlier over-production, as well as the increasingly uncertain economic conditions. All in all, the demand environment, as the industry enters a seasonal slowdown in offtake in the northern hemisphere, is not particularly positive.

> This article gives the introduction to our latest detailed analysis on the market. In order to receive a free copy of the Base Metals Market Briefing, please contact: info@gfms-metalsconsulting.com.

Disclaimer: Whilst every effort has been made to ensure the accuracy of the information used in this document, GFMS Metals Consulting cannot guarantee such accuracy and GFMS Metals Consulting does not accept responsibility for any losses or damages arising directly, or indirectly, from the use of this information.