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Metals industry more positive ahead of
LME Week
By Samantha Shields
LONDON, Oct 7 (Reuters) - The atmosphere will be more
positive than it has been for the past two years when leaders of
the world's metals industry gather in London from Monday for a
week of negotiating and networking.
Prices are well clear of their recent historic lows and the horrors
of the Asian financial crisis seem to have passed.
``There are three things that have led to the recovery -- cutbacks, rationalisation and, most
importantly, the fact that forward looking global economic indicators are strong,' Alan Williamson,
head of commodities research at HSBC in London, said. ``Every region in Asia, with the exception
of Indonesia, will be back to pre-crisis levels by the end of the year, we've passed the worst.'
London Metal Exchange (LME) copper prices have recovered from the 12-year lows reached in
May, rising by around 30 percent to hold above $1,750 a tonne. Aluminium is above $1,500, up by
the same margin since March, when it was its lowest for five and a half years.
Nickel is holding above $7,000, up by 88 percent from the 16.5-year lows it reached in December
last year.
KEY EVENTS ON THE FRINGE
On the business side of LME Week, the events on the fringes of the official conferences and
receptions signal the beginning of the so-called mating season, when miners and smelters thrash out
deals for the following year.
``The relationship between the miners and smelters will be a lot better this year, when the prices are
higher there aren't so many issues to disagree on,' Tariq Salaria, metals analyst at LME ring dealer
Brandeis, said.
Williamson said rationalisation in copper and aluminium had given the impression that producers had
finally reacted to very low prices.
Copper and aluminium followed other industries in July, when U.S. producers Cyprus Amax
(NYSE:CYM - news) and Asarco (NYSE:AR - news) announced plans to merge.
Hostile bids from Phelps Dodge (NYSE:PD - news) and Grupo Mexico for both companies
followed in August and September, and the web was unravelled only this week when Asarco
accepted a higher bid from Phelps Dodge just days after Phelps had reached a friendly agreement to
buy Cyprus Amax.
Alumiunium is set for domination by two giants. Alcoa (NYSE:AA - news) and Reynolds Metals
Company of the United States agreed to merge in August, soon after the three-way merger between
Switzerland's Alusuisse-Lonza Group , Canada's Alcan (Toronto:AL.TO - news) and France's
Pechiney .
The newly formed companies have yet to give hard figures on production cutbacks, but the industry
consensus is that there will be cuts before long.
This year's announced production cuts from Asarco, Phelps Dodge, Australia's Broken Hill
Proprietary Co Ltd (Australia:BHP.AX - news) and Canada's Highland Valley, totalling around
500,000 tonnes, are beginning to ring hollow as output creeps up again.
``There is some nervousness appearing on the supply side, prices have come off the highs a little in
the past two weeks and there are fears that Japanese growth and Chinese demand may slow,' said
Jim Lennon, analyst at Macquarie Bank in London.
``Maybe not everybody is ready to buy the bull, but it's a lot better than it was last year,' he added.
Even Western Australia's nickel producers may be welcomed in London this year.
Operating problems at their new lateritic nickel projects have meant that first wave production will
be well below the 33,000 tonnes predicted for 1999.
``This time last year the nickel price was lower, demand was weakening and there was outright fear
of a deluge of Western Australian nickel in 1999,' Lennon said.
He estimated that it would take six to nine months for first wave production to reach capacity, which
would postpone investment in the second wave of production for at least a year.
``That means we can count on a healthy supply and demand picture in nickel for another two years.'
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