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- The latest Editorial from Peter Hollands, Paul Dewison and Christopher Welch:
- June 5th 2008 - Over the past month, a great deal of political attention has been focused on the prices of crude oil, foods and other commodities. At BME, we have found the debate rather frustrating, as it seems to us that over-simplified views are being expressed by the two opposed sides: those who think high prices are driven by increased physical demand and those who blame either speculators or investors. One thing is clear: for copper, stock to price relationships have changed dramatically over recent years. Prior to 2005, an LME copper stock level of 120 kt would have co -existed with a price of below $3,000. Adjusting for changes in the value of the dollar and for non-dollar related changes in production costs, one might adjust that to around $4,000. However, today a 120 kt LME copper stock figure co-exists with a price of almost $8,000.
- Black Sea Consumption
- With a foot in three separate regions as traditionally labelled, only recently has the Black Sea region come to be seen as an entity in its own right. Straddling parts of Western Europe, the FSU and the Middle East, this region has formed its own internal dynamic, with market
growth based on both domestic demand and exports and considerable investment by a few dominant companies. We define the region to include Bulgaria, Romania, Turkey, Greece, Serbia, Albania and Macedonia.
The market for refined copper around the Black Sea has grown rapidly. We estimate refined copper use in fabricating at 636 kt in 2007. This is up from only 420 kt in 2001, representing a cumulative growth rate of around 4% p.a. While the rate of growth in copper use is similar to that in other regions on Western Europe’s periphery, namely Central Europe and Middle East / North Africa, it is much higher than the sluggish 0.2% p.a. growth recorded in Western Europe itself. To some extent, the static market in Western Europe reflects the shift of fabricating to bordering countries to the east and south, these countries benefitting most from the core region’s continued growth in the end use of fabricated products. - Consumption Trends
- The fabricating industry landscape in Europe has changed dramatically with the finalisation of the acquisition of Cumerio by Norddeutsche Affinerie (NA). Both copper smelters and refiners were integrated downstream into copper shapes, wirerod and copper/alloy mill products. Excluding shapes, total output of the expanded NA’s facilities in the financial year 2006-07 (ended September) approached 1.2 Mt. (This figure includes the entire output of facilities in which NA does not have 100% ownership.) NA is now the dominant force in wirerod in Europe, with four production sites in Germany, Belgium and Italy with combined output running at nearly 1.0 Mtpy. The company also makes pre -roll strip (238 kt in 2006/07, some of which it processes downstream), and 4 ktpy of profiles.
- Macroeconomic News
- Global IP data for March, the last month for which we have full figures, showed 4.9% annual growth. It is evident that there has been a sharp slowing since then. A rise in inflation (especially in commodities), property market turmoil and the battering of financial institutions that has followed are taking their toll. Weakening consumer confidence is perhaps the most obvious direct effect, as consumers see the amount they have to spend on other than the basics of life squeezed as the price of fuel and food spiral, in rich and poor countries alike. Industry, also, is seeing its margins eroded. The most obvious signs of the slowdown are in North America and Japan, though other economies, including China, are now reporting weaker economic growth. Leeway for the central banks to stimulate growth by cutting interest rates is minimal, with inflation looming large in their thinking.
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