US slowdown to hit aluminium more than copper : Citigroup

Print this page Posted on : 11-30-2007 by recycleinme.com

A US recession would create a greater risk for the price of aluminium than for copper, Citigroup Inc has said.

US aluminium consumption accounts for 18 per cent of global demand, while copper use represents 12 per cent of worldwide consumption, Mr. Alan Heap, Sydney-based Managing Director of global commodities at Citigroup, said in a report on Wednesday. Citigroup, based in New York, is the biggest US Bank.

“A recession in the US would damage the aluminium market more than copper,” Mr. Heap said. “The risks of a sharper slowdown or even recession are mounting.”

Before Wednesday, aluminium dropped 11 per cent on the London Metal Exchange as production increased in China, the world’s largest producer. Copper climbed 4.3 per cent, lead surged 81 per cent, and tin jumped 46 per cent. Zinc and nickel have posted bigger declines than aluminium.

GROWTH FORECASTS

Federal Reserve officials last week cut their forecasts for US growth. The Fed expects US gross domestic product to increase 1.8 per cent o 2.5 per cent in 2008, “notably below” the 2.5 per cent to 2.75 per cent projection in July, the central bank said on November 30.

“The aluminium market is vulnerable to further US economic weakness,” Mr. Heap said. Still, the metal’s price may gain next year as higher costs for energy and alumina, used to make aluminium, limit production at Chinese refineries Citigroup said.

ZINC TO DROP 11%

A “squeeze” at Chinese smelters creates “ a real risk of sharply higher prices,” Mr. Heap said.

Zinc, the worst-performer on the London Metal Exchange this year, will drop 11 per cent in 2008 as the market returns to surplus, National Australia Bank Ltd. said.

Output of zinc will rise 7.8 per cent next year on growth in CHina, India and Europe, sending prices lower, Mr. Gerard Burg, minerals and energy economist at Melbourne-based National Australia Bank, said on Thursday in an e-mailed report. The price will average $2,925 a tonne, down 11 per cent on the bank’s 2007 forecast.

Zinc, used to galvanize steel, has dropped 41 per cent this year as new mines boost supplies. Citigroup Inc this month cut its 2008 forecast for the metal by 28 per cent.

“In 2008, zinc markets are forecast to return to surplus-as production outpaces relatively modest demand growth,” Mr. Burg said. “Reflecting this outlook, zinc prices are expected to ease in 2008”.

There will be a surplus of some 2,50,000 tonnes next year, equivalent to a week of global zinc consumption, Mr. Burg said. This compares with a balanced market in the first seven months of 2007, he said.

Zinc for three month delivery in London rose $105, or 4.4 per cent, top $2,490 a tonne on Wednesday. The metal has dropped by almost half from the all-time closing high of $4,515 a tonne on November 9, 2006.

Source : Business Line