Manufacturers Not Likely To Get Relief From Metals Prices Next Year

One thing that most manufacturers would be happy to leave behind in 2006 is the higher cost of commodities prices, with metals near the top of the list.

One thing that most manufacturers would be happy to leave behind in 2006 is the higher cost of commodities prices, with metals near the top of the list.

Despite some weakness of late, it’s probably not going to happen.

“There is a reasonably strong prognosis for seasonal recovery in many of the metals markets,” said John Tumazos, senior metals & mining analyst at Prudential Equity Group. “First and foremost, most segments of the world economy appear to be booming, other than U.S. consumer-led housing, appliances, autos, etc. China, the Mideast, Germany and a number of regional economies are brisk.”

Tumazos also questions how many segments within the metals sector can produce 5 percent additional supply if 2007 is another year of surging demand. (He’s confident aluminum and steel could, but no so for others.)

Meanwhile, he notes that several players in the molybdenum market (Thompson Creek, Rio Tinto, and Codelco among them) have already warned customers to expect output declines next year of up to 5 percent of global mine output.

“It is possible that demand rises at least 3-5 percent in sympathy with aerospace, oilfield exploration, refinery repair, desalination, steel plate and other deep capital goods without any supply rise,” he said.

While copper prices pulled back last week, he thinks inventory gains and price erosion should lessen, or completely reverse, in the upcoming seasonally strong time of year.

On the steel front, Tumazos estimates deliveries into the U.S. reached a record 137.3 million tons this year, up from 120.8 million tons in 2005. Of that record amount, he believes true usage was closer to 125 million tons, with 10 percent going to inventory.

Remarkably, he notes that 2006 appears to have been a record 9.8-million-ton export year.

“It seems unexpected that domestic steelmakers would export more when they cannot supply the U.S. market,” he said.


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