January/February 1996
As if obeying the laws of economic gravity, the upwardly mobile markets for many scrap commodities returned to earth, sometimes with a thud, in the second half of last year. Even so, 1995 generally ranked as a good year, and the market tea leaves seem to suggest equally good or better times in 1996.
By Robert J. Garino
Robert J. Garino is director of commodities for ISRI.
As 1995 wound down, so did most commodity markets, both domestically and internationally.
Metal prices, whether measured by the LME or consumer buying, eased lower as the year progressed, with some markets seeing this negative trend accelerate in the final months of the year.
Nonmetallics were similarly affected. Scrap paper prices, for example, literally plummeted in the second half, while many grades of plastics were far weaker at end-1995 than at the start.
Interestingly, commodity-based investment funds, which took credit for accelerating the price runup for certain base metals in 1994, also took some of the blame for lower values in 1995, as fund selling activities coincided with declining monthly exchange averages in the second half of the year.
But that was only part of the story, and only one of the clues to what the recent past could mean to commodity markets in 1996.
Lower domestic demand from manufacturers was also clearly a negative factor for most scrap-related commodities toward the end of last year. Then again, among the nonferrous base metals at least, world supplies of raw materials had trouble keeping pace even with declining consumption, prompting many to apply the term “deficit” to these markets when analyzing 1995 world supply-demand balances. This, however, was not the case for finished steel, virgin plastic resins, or market pulp inventories.
In any case, scrap recycling executives concede that demand and prices for most scrap commodities—and their virgin counterparts—turned bearish last year, but they note that this decline was in comparison with 1994, now considered an extraordinary year by most measures. In short, 1994 was a hard act to follow but, on balance, “1995 was still a very good year,” as one industry source put it.
That’s also essentially how the government and many economists have viewed the overall U.S. situation in the last two years, though they have had a bit more to say on the subject. In his presentation to Congress in September, for instance, Federal Reserve Board Chairman Alan Greenspan emphasized the “exceptional” rate of spending by U.S. consumers and businesses in 1994. This, he said, propelled the economy forward and pushed real gross domestic product (GDP)—defined as the total value of goods and services produced in the United States, adjusted for inflation—up 4.1 percent during the year. Pressures on resources, he pointed out, were particularly intense in key manufacturing sectors, causing “sharp increases in the prices of materials and supplies.”
As for 1995, he saw economic “moderation” in the first quarter, with aggregate production “decelerating further” in the second quarter as industry responded to rising inventories. GDP, he predicted, would therefore turn out to have been flat in the second quarter. Following that, members of the Federal Reserve’s board of governors and presidents of the Reserve Bank collectively anticipated that the economy would experience moderate growth in the second half of 1995 and into 1996.
In hindsight, however, the third quarter of 1995 turned out to be far stronger than their predictions. Real GDP, for example, rose at an eye-opening 4.2 percent annual rate following the more-tepid second quarter (which revised figures eventually pegged at 1.3-percent growth). This spike was significant for two reasons: It marked the strongest quarterly increase since the 5.1-percent rise reported in the fourth quarter of 1994, and inflation remained under control. In fact, inflation—as measured by the consumer price index (CPI)—fell to a paltry 1.8 percent in the third quarter, and many economists believe that the CPI overstates inflation.
Thus, nearly five years into this economic expansion period, inflation continues to be a nonevent. As evidence, most precious metals—which are extremely sensitive to inflationary activity—recorded very little movement last year. And because of this, some argue that the United States may be edging toward a new kind of “disinflational growth,” which would hold uncertain consequences for the future.
As for economists’ views, as last year came to a close, many were cautious in interpreting positive reports on consumer spending, business investment, and government spending in 1995, and what these data portend for 1996. In particular, they viewed relatively large inventories of finished goods as a depressing factor that, in all probability, would prove to have slowed the economic pace in 1995’s final quarter. Furthermore, a number of published sources pointed out that economic fundamentals were far weaker than would be expected considering the second-half growth data reported. And indeed, economic indicators released in October and early November provided some evidence that the third-quarter numbers were, perhaps, a fluke.
Wall Street, however, continued to bet on U.S. economic growth and, with it, the prospects for healthy corporate profits. Any negative deviation from that view was also considered bullish since investors figured the Federal Reserve would then act decisively by lowering interest rates to bolster the economy. Thanks to this outlook, the Dow closed above the 5,000 mark, in the third week in November, reinforcing the impression that the investment community expects progress in achieving federal spending cuts and possible lower interest rates to sustain economic growth in 1996 while keeping inflation at bay.
1996—Another Boom Year?
Most likely, no.
Despite the runup in the stock market at the end of 1995, most projections call for moderate growth in 1996. A survey by the National Association of Business Economists (Tempe, Ariz.), for instance, places GDP growth at 2.6 percent for 1996 (compared with the 3.3-percent preliminary rate reported for 1995 overall), and growth in the next five years a shade lower at an average of 2.5 percent per year. Similarly, the Office of Management and Budget projects a 2.5-percent GDP growth rate this year, while the Congressional Budget Office estimates that 2.3 percent will be closer to the mark. Adding an international perspective, the Organization for Economic Cooperation and Development (OECD) (Paris) pegs the U.S. growth rate at 3 percent in 1995, 2.5 percent in 1996, and 2.7 percent in 1997.
As for projections on the international economy, the OECD—which encompasses the world’s 25 industrialized nations—asserts that economic fundamentals in its member countries are “good,” with Joseph Stiglitz, president of the OECD’s committee on economic policy, noting that the slowdown experienced in 1995 was no real cause for concern. OECD forecasts call for 1996 growth among its member countries to average 2.5 percent, which would be slightly up from the 2.25-percent growth expected in 1995. And the group predicts even stronger growth of 2.8 percent in 1997.
Looking at a few specific nations, Germany’s economy will grow about 2.4 percent in 1995, 2.7 percent in 1996, and 2.9 percent in 1997, the OECD forecasts. Japan, meanwhile, is expected to finally return to a high-growth scenario, though not before 1997.
Turning to Eastern Europe, the European Bank for Reconstruction and Development (London), predicts “very good” prospects there for 1996. According to the bank’s annual report, published in November, the GDP in more than a dozen countries of Eastern Europe, including the three Baltic states, will grow an average of 4.4 percent in 1996, following the 3.8-percent growth recorded in 1995. The economies of all the republics in the Commonwealth of Independent States, meanwhile, are expected to grow around 3.2 percent this year after contracting 3.4 percent last year, the bank reports.
Despite this positive worldwide outlook, no one appears to be calling for a boom year. Then again, fewer still are talking seriously about a recession this year—or next.
So what does all this portend for commodities in general and markets for scrap materials in particular? For metals, one hint was offered by Rudolf Wolff & Co. Inc. (London), which predicts a 1996 global economic growth rate of 4.1 percent and resulting base metal market supply shortages this year.
In contrast, most paper executives don’t foresee pulp shortages, though they do expect recovery in many traditional scrap paper grades as individual end-use markets improve. For its part, the plastic industry is also hoping to see a more balanced market in 1996, though the prospects of this happening are admittedly cloudy.
No matter what the commodity, however, thanks to the generally positive economic scenario expected in 1996, which is solidly underpinned by the fact that this is an election year, market fundamentals appear to favor sellers of raw materials. Also, with less market involvement expected by investment funds in 1996, price volatility may be less of an issue than it was in 1994 and 1995. Scrap recyclers, therefore, can take some comfort in that the tea leaves seem to foretell increased scrap consumption and potentially higher prices in the months ahead.
With that as background, a handful of industry executives and analysts peered into their respective market teacups and shared their readings on the prospects for the major scrap-related commodities..
Aluminum
No discussion of the current and future aluminum market can be complete without acknowledging the effects of 1994’s so-called memorandum of understanding. This agreement to cut primary production, forged among the principal aluminum producing nations in order to resolve a world glut of aluminum exacerbated by a flood of C.I.S. material to the West, effectively helped to reduce a worldwide oversupply of metal within two years.
But, of course, the memorandum is only part of the equation that explains the aluminum market’s recent past and near future. Strong world aluminum consumption in 1994 (up 9 percent over 1993), coupled with lower primary production (down 5 percent) attributed mostly to the memorandum, began to whittle down LME inventories that year. And although 1995 demand was no match for the previous year, production restraints dictated by the memorandum, production problems, and smelter closures helped to further bring down above-ground stocks of primary metal. The net result: For two years in a row, world aluminum consumption surpassed supplies, producing a statistical supply deficit.
As for 1996, aluminum executives offer mixed views.
Relatively lower growth rates for aluminum are expected to be accompanied by capacity restarts and expansions of existing smelters this year. Even so, most still predict another statistical supply deficit.
Prices, meanwhile, aren’t expected to show much upward movement, with most forecasts projecting average LME prices to fall within the low-80s-to-mid-90s-cent-per-pound range in 1996. One lower-end forecast, from Marubeni Corp. (Osaka, Japan), ventures that the metal will trade between 75 and 88 cents per pound based on an expected global supply deficit of 200,000 mt this year, with the 88-cent figure occurring in the third quarter. More optimistic projections, meanwhile, come from Goldman Sachs & Co. (New York City), which predicts a 12-month high of $1.11 per pound, and Morgan Stanley & Co. (New York City), which is expecting an average $1-per-pound aluminum price.
Most aluminum recyclers guardedly offer that 1996 will probably be a good year, thanks to reasonably optimistic expectations regarding auto production, housing starts, and scrap availability. Furthermore, one Midwest processor confides that average spreads could actually widen due to the ready supply of scrap, coupled with “marginally lower demand” and “steady” prices. “Seasonal factors may temporarily change that,” he adds, “but processors should profit from the fruits of positive demand and ample scrap in 1996.”
Copper
In contrast to the aluminum market, about which there appears to be more shared opinions than differences for 1996, the copper outlook generates more diverse views.
For the past few years, both the world and U.S. markets clearly enjoyed robust consumption while new mine and refined production registered declines, creating a market imbalance that began in 1994 and continued through last year. Copper tags therefore held firm last year, with the LME three-month price averaging $1.31 per pound through November.
All well and good—for now. The debate enters the picture with the longer-term concerns of when supply will catch up with the demand and what will happen to prices for cathode and scrap when this
occurs.
Douglas Yearley, for instance, president and CEO of Phelps Dodge Corp. (Phoenix), the nation’s largest copper producer, foresees a “roughly balanced situation” this year, while the International Copper Study Group (Lisbon) fully expects to see a “modest surplus” in 1996 based on “significant new copper production capacity” and “more moderate growth of copper demand” this year.
Rudolf Wolff & Co., too, predicts a surplus this year, projecting that total Western World supplies will exceed consumption by 98,000 mt this year and that LME prices will, hence, average around $2,500 per mt, or $1.13 per pound. Metal Bulletin Research (London) offers a similar forecast, noting that while world demand is expected to grow 2.2 percent over 1995, production will “rise significantly” and average cash copper will, therefore, be about $2,475 per mt, or $1.12 per pound. Adding to the prediction pool, Brandeis (Brokers) Ltd. (London) suggests that a “small surplus” is possible this year, and calls for LME copper to average close to $2,400 per mt, or $1.09 per pound.
As for the scrap situation, with LME values showing increased volatility due to a widening backwardation in the final months of 1995, domestic scrap recyclers, brokers, and consumers are admittedly uncertain about the supply outlook and price prospects for the new year. One who ventured a guess, Rik Kohn, vice president of Federal Metal Co. (Bedford, Ohio), notes that while the domestic market looked “soft” in November and December, he expects copper to “hold firm” in early 1996 before finally giving way to gradually changing supply-demand fundamentals. As a result, he adds, “I’m less concerned about business prospects—and copper prices—in 1996 than in 1997.”
Iron and Steel
Despite lower steel shipments and production rates in the second half of 1995—compared with the same period in 1994—and softer fourth-quarter scrap prices, the steel and ferrous scrap industries have had few complaints about last year. Says one Midwest distributor: “Overall steel business was excellent. While we probably took in slightly less product from the mills than in 1994, our customer base broadened beyond the automotive and construction sectors.”
Indeed, even with its second-half downtrend, 1995 may have actually bested 1994, which was generally regarded as a great year for steelmakers and ferrous recyclers. According to World Steel Dynamics (New York City), domestic shipments for all of 1995 may have reached 97.5 million tons, which would represent a 2.5-percent increase over 1994’s shipment level of 95.1 million tons.
The industry also enjoyed strong export demand throughout 1995, with steel product exports expected to have hit 6 million tons—compared with 3.8 million tons in 1994—and ferrous scrap exports running at an annualized rate (based on partial-year data) of 9.7 million mt, or 20-percent above 1994’s total.
All the numbers weren’t completely rosy, however, as the weakening second-half demand pulled down both finished steel and ferrous scrap prices. By October, Nucor Corp. (Charlotte, N.C.) had announced its fifth price cut for hot-rolled and cold-rolled products. By November, spot prices for hot-rolled steel, a key barometer of the steel market, had dropped 20 percent from their peak in mid-1994. And also by November, the price of No. 1 heavy-melting steel scrap dropped 10 percent from its 1995 peak of $138.83 per ton, first reached in January and touched again in August.
While domestic ferrous recyclers don’t see a quick turnaround in demand and prices in early 1996, they are confident that the market’s downside is limited, pointing out that steady mill demand for scrap and weather considerations should help underpin prices in the first quarter. “We’re also expecting to feel the influence of new steelmaking capacity in 1996,” notes one Midwest recycler, adding, “This bodes well for regional scrap suppliers.”
Although estimates vary on the amount of capacity due on-stream in the near term, studies indicate that around 10 million to 13 million tons of new, flat-rolled minimill capacity will come on-line by the end of 1997. This additional capacity should put upward price pressure on key low-residual grades of scrap this year and next, note many steel and scrap executives, though none expect a scrap shortage to develop.
Internationally, world steel consumption (including China and Eastern Europe) is expected to have reached 655.4 million mt in 1995—1.7 percent above the 1994 level—and to increase by an additional 6.7 million mt this year, or 1 percent above 1995, reports Lenhard J. Holschuk, secretary general of the International Iron and Steel Institute (Brussels).
Lead
Largely forgotten by most LME watchers, lead turned into a star performer late in November, as world fundamentals attracted renewed attention from trade and nontrade sources. Steadily declining LME-held inventories acted as an important catalyst that helped boost the three-month price to levels last seen five years ago.
This market revival wasn’t a surprise to some analysts, who had predicted good fortunes for the lead industry since early 1995. These optimistic expectations were based on lead’s performance in 1994, when Western World consumption hit a record 4.8 million mt (with U.S. consumption alone reaching 1.5 million mt), paced by record automotive battery production, according to the International Lead Zinc Study Group (ILZSG) (London).
Continuing this trend, Western World lead consumption in 1995 remained positive, touching 4.85 million mt, with U.S. consumption declining slightly to 1.46 million mt, according to Lou Magdits, raw materials manager for Doe Run Co. (St. Louis).
Even though 1994 saw a surplus in world lead supply—which includes Western World refined production, net imports from Eastern Europe and other socialist countries, as well as U.S. stockpile sales—world production lagged in 1995, as did the flow of metal from Eastern Europe. As a result, visible lead stocks fell rapidly last year, and the market shifted from a statistical surplus to a potential deficit.
In 1996, Western World consumption is expected to grow 2 percent to 4.94 million mt, but mine production will not keep pace, ILZSG asserts. Other industry experts also acknowledge that a lead deficit in 1996 looms significantly large, prompting further stock drawdowns this year. Rudolf Wolff & Co., for example, foresees a 90,000-mt deficit this year despite projected higher mine output (2.12 million mt vs. 1.97 million mt in 1995) and expected increases in secondary lead production. Similarly, Brook Hunt & Associates (London) ventures that lead could experience a 71,000-mt shortfall this year, while CRU International Ltd. (London) asserts that lead stocks could approach “historically tight levels” in 1996, recalling the days of 1989. If this occurs, lead prices could literally take off this year, CRU says.
Despite lead’s bullish supply-demand scenario and CRU’s price optimism, most price forecasts are more conservative, with the consensus view calling for an LME average in the low-to-mid-30s-cent-per-pound range for 1996. T. Hoare and Co. (London), for one, predicts an LME average of 31 cents per pound, slightly up from its 1995 forecast of 29 cents per pound.
Domestic scrap recyclers and consumers appear comfortable with those projections. They also see U.S. consumption moving slightly higher this year and, consequently, anticipate relative tightness for refined supplies. This, they say, will keep average premiums above cash LME at or near the record 81/2-cent-per-pound level announced by Asarco Inc. (New York City) for November and December.
Recyclers note, however, that in contrast to the tightness for refined material, lead scrap, in the form of spent lead-acid batteries, will likely be in more than ample supply to meet domestic and offshore consumers.
Nickel and Stainless Steel
“This is the commodity to watch in ’96.”
That statement by a nickel broker sums up the optimistic market view of nickel producers, stainless steel mills, and recyclers of nickel-bearing scrap. And they have good reason to be optimistic. Not only did Western World nickel demand grow 16 percent in 1994 to 744,000 mt, but it is expected to have recorded another 15-percent increase in 1995, bringing total demand to 893,000 mt, according to Inco Ltd. (Toronto), which dubbed 1995 a “banner year.” Much of this rise can be credited to stainless steel production increases at existing and several new stainless mills around the globe, as well as perceived tightness in scrap supplies, which pushed the price for nickel contained in 18-8 scrap to a premium over the LME cash price for nickel in five separate months last year.
On the less positive side, while strong nickel demand helped reduce LME-held stocks throughout last year, the positive effects of this drawdown were diminished by the steep second-half production cuts made by European stainless producers, the world’s largest nickel consumers. U.S. stainless shipments also cooled in the second half of the year, though total shipments in 1995 should have easily surpassed the 1.4 million tons of flat products shipped in 1994. Still, shipments don’t necessarily indicate actual consumption, as U.S. stainless steel service centers reported record inventories at the end of the third quarter.
Despite these caveats, nickel’s worldwide story is largely one of demand exceeding supply. In 1995, for instance, demand for nickel is expected to have recorded a 10-to-15-percent increase over 1994, compared with a refined production rise of around 12 percent. That means last year’s projected deficit, after factoring in Eastern European sales as well as U.S. government stockpile sales, ranged between 25,000 and 120,000 mt, and a 51,000-mt deficit is probable in 1996, even if demand stays constant and Russian exports increase, according to Scotia McLeod (Toronto).
Clifford Carson of Diamond Fields Resources (Toronto) agrees that nickel demand will continue to outpace supply this year—and next—estimating that consumption will reach 940,000 mt in 1996 while Western World supplies will lag at 886,000 mt. This imbalance “should result in significant price increases,” he predicts, asserting that nickel could visit the $6-per-pound level this year.
Adding a concurring outlook, Joseph Laezza of Falconbridge Ltd. (Toronto) says nickel supplies will be “tight” in 1996, with prices generally above $4 per pound this year and next.
Even those who do not believe that the phenomenal stainless steel consumption growth recorded in the past few years (up 37 percent between 1993 and 1995) can be sustained agree that primary nickel supplies—encompassing Western production, C.I.S. exports, and above-ground stocks—will be an important price determinant this year. Because of the potentially large deficit, Brandeis (Brokers) Ltd., for example, sees the LME nickel price averaging $5 per pound in the first half of the year, while Kris Hansen of WMC Nickel Sales (Toronto) expects a 1996 average between $4.25 and $4.50 per pound. Finally, Wiktor Bielski of Bain & Co. (London) predicts an average nickel price of $5.75 per pound, which is considerably more optimistic than the prediction of $3.85 per pound he offered in October.
Paper
Beginning in mid-1994, the secondary paper market was swept up in a tornado of activity that propelled scrap paper demand to extraordinary heights for months. Strong mill demand from both existing and new deinking facilities stretched existing raw material supply lines, forcing packers to literally scramble to meet both domestic and robust export orders.
Prices responded wholeheartedly, with average values for most scrap paper grades rising by some 40 percent in the January-to-June-1995 period, according to published sources. OCC, in particular, experienced an unprecedented runup, briefly exceeding $250 per ton in some parts of the country. Such lofty prices as well as supply concerns prompted some mills to switch to lower grades to contain costs; some even decided to substitute virgin pulp for recovered fiber.
This market craze came to a dramatic end in mid-1995. The market took a nosedive as world demand for paper and paperboard dropped off, prompting many mills to take extended downtime and, thus, sharply curtail their recycled fiber needs. Market pulp inventories also continued to increase on the world market.
In light of these factors, prices for many grades plunged to depressed levels last seen in 1993. At the end of November, OCC was fetching around $40 per ton—a far cry from its heady tags last summer. ONP also experienced a sharp drop, as did sorted white ledger, which was reportedly commanding half the price it had procured in May.
Faced with this drastic reversal of fortune, some paper recyclers wax philosophical. “We live with the cyclicality of this industry,” observes one eastern packer. “We know the market will turn around—it always does.” Others aren’t as optimistic, noting that prior to 1994, the market was in the doldrums for more than two years. “We simply can’t afford another prolonged slump,” confides one Midwest broker.
Despite their New Year’s wishes for revived demand, most scrap paper recyclers and consumers don’t expect a fast recovery, either domestically or offshore. Mill inventories of finished products must first be worked down and the scrap market must deal with the considerable amount of recovered fiber already looking for a home. Thus, industry observers don’t anticipate serious buying to resume before the second half of 1996.
On a more positive note, world supplies of bleached chemical pulp are trending lower, thanks to production cuts totaling 900,000 mt, according to Roger Wright, managing director of Hawkins Wright (London). These cuts, he predicts, “will allow the market to recover.”
For their part, domestic paper recyclers say the turnaround can’t come soon enough.
Plastics
Not unlike the paper market, the plastic industry also saw dramatic price shifts and changes in market sentiment last year. For example, PVC producers, which saw strong demand in 1994 and into 1995, experienced lower consumption as 1995 progressed, pushing year-end general purpose resin prices down some 20 percent from the levels recorded in mid-1995. PVC consumption in 1995, in fact, may have shown the market’s first year-on-year decline in the past 10 years, and other commodity thermoplastic resins such as PE, PP, and PS were similarly affected.
In the scrap plastic market, PET and HDPE have likewise been on something of a roller coaster ride. Tremendous demand hit the scene back in 1994, spurred by new and expanding recycling capacity, as well as a shortfall of cotton on the world market, which drove up Far East demand for PET to use in the production of synthetic fiber. In addition, tightness had developed in key commodity-grade resins, due, in part, to disruptions in domestic ethylene production, prompting manufacturers to turn to scrap as feedstock. Scrap prices thus took off from January through June 1995, in some instances doubling.
In the second quarter of 1995, however, consumer resistance to higher list prices for virgin resin through most product lines became apparent, even though overall demand for plastics remained positive. And by the third quarter, demand indeed began to decline, but virgin resin suppliers reportedly continued to expand production, with output through the first three quarters running around 5 percent above comparable 1994 numbers. The result was a surplus of virgin resins that allowed consumers to buy “off-spec” virgin pellets priced at a discount to recycled pellets, diminishing demand for recycled feedstock.
Prices for most scrap plastics weakened as the softer tone in the marketplace evolved, though scrap PET has shown little fatigue.
Looking into 1996, markets for scrap plastics are expected to continue to follow this path, with a surplus of virgin resins depressing demand for and prices of most scrap plastic grades well into 1996. And PET’s prospects remain more positive than other recycled grades due to anticipated steady buying, both domestically and internationally. In fact, according to Keith Mitchell of PCI Ltd. (Derby, England), world demand for virgin PET resin is expected to double between 1994 and 2000, which—if true—should help build the already-hearty recycled PET market.
Zinc
Among the base metals, zinc was largely a “nonperformer” last year, owing to the large overhang of slab zinc stocks accumulated between 1990 and 1994, notes Rod Webster, managing director of Western Metals Ltd. (Perth, Australia). Indeed, at the end of 1994, Western World stocks totaled more than 1.6 million mt. That’s equal to about 14.8 weeks of consumption, according to Cominco Ltd. (Toronto), but market researchers believe that a normal level should be closer to 6.2 weeks. As for zinc prices, the metal was fetching 25-percent less than its longer-term average in late 1995.
Zinc’s picture looks more promising, however, when you compare past and current demand against new mine and smelter production.
According to Dan McNeill, vice president of zinc metal for Noranda Sales Corp. Ltd. (Toronto), Western World zinc consumption has grown 5 percent per year in 1994 and 1995, with projections calling for an additional 4-percent increase in 1996. Refined production, meanwhile, has failed to keep pace, thereby moving the Western World market from a surplus in 1994 to a statistical deficit of about 163,000 mt in 1995, according to estimates by ED&F Man (New York City). With this background, LME inventories dropped throughout the year, ending 1995 at around 675,000 mt—40-percent lower than at the start of the year.
Prospects this year look reasonably bright, based on recent forecasts. In terms of demand, the galvanizing, alloy, and brass mill sectors—which reportedly account for around 80 percent of annual zinc consumption—are expected to show positive consumption in 1996.
Looking at supply, many analysts expect the statistical zinc deficit that developed in 1995 to continue through 1996, with CRU calling for a 300,000-mt shortfall and Rudolf Wolff & Co. predicting a similar figure of 293,000 mt.
In terms of prices, Noranda estimates that LME zinc will average 53 cents per pound in 1996, 63 cents in 1997, and 65 cents in 1998, while CRU and Rudolf Wolff forecast averages of 49.9 and 52 cents, respectively, for this year.
On the more conservative side, Brook Hunt (Surrey, England) sees LME zinc veering closer to 49 cents per pound this year, while Resource Strategies Inc. (Exton, Pa.) expresses concern that new mine production due on-stream in the next several years will severely limit zinc’s upside price potential. Heavy Chinese selling on the world market is also seen as a potentially negative factor.
Still, buoyed by zinc’s steadily improving supply-demand fundamentals, many zinc executives express confidence that the market will gradually firm as the year progresses, with much of the upside occurring in the second half. In particular, premiums quoted by buyers and sellers of SHG zinc, delivered to the Midwest, are expected to be strong, ranging between 5 and 6 cents above the LME cash price this year compared with just under 5 cents at the end of 1995, according to one dross processor. •
As if obeying the laws of economic gravity, the upwardly mobile markets for many scrap commodities returned to earth, sometimes with a thud, in the second half of last year. Even so, 1995 generally ranked as a good year, and the market tea leaves seem to suggest equally good or better times in 1996.