Non-ferrous metals division: investor
money exceeds market liquidity
More than 20% of the value of aluminum is currently
in the control of the hedge funds, according to Jim Southwood, founder
and president of Commodity Metals Management Company of the United
States. “Unfortunately, we are at that point today where the
investors have saturated the markets for base metals,” he
told the BIR Non-Ferrous Metals Division meeting in Beijing.
Southwood suggested that investor money exceeded
the liquidity of the markets and forced prices to rise. And as prices
climbed higher, more people clamored to invest in base metals, thereby
fueling further price increases. The result was “a self-fulfilling
prophecy”, said the guest speaker, before adding “this
will all end in tears”.
His presentation also alluded to a “chronic
under supply” of scrap in China owing to rapid consumption
growth and to the current low volume of aluminum embodied in products
nearing the end of their useful lives. This gap between supply and
demand would not close until the year 2013 at the earliest and possibly
not until 2025, ventured Southwood.
The second guest speaker at the meeting was Mr.
Ma, vice-general secretary of the China Non-Ferrous Metals Industry
Association Recycling Metal Branch. He revealed that Chinese output
of secondary copper had climbed from 1.16 million tons in 2004 to
1.42 million tons last year, while secondary aluminum output had
jumped from 1.66 million tons to 1.94 million tons. By 2010, domestic
secondary copper and aluminum output was expected to reach, respectively,
2 million and 4.5 million tons. Chinese imports of non-ferrous scrap
were thought likely to double between 2005 and 2010.
One of the aims of China’s eleventh five-year
development plan (2006-2010) was to encourage consolidation within
the country’s secondary non-ferrous metals sector which was
currently dominated by smaller enterprises, the speaker added.
In summarizing the global markets, divisional
board member Michael Oppenheimer of UK-based Mountstar Metal Corporation
pointed out that the Bombay Metal Exchange (BME) had asked the Indian
government to cut excise duties and CVD from 16% to 8%, and also
to reduce the import duty on metals from 7.5% to zero. Meanwhile,
in a “brisk” North American market, scrap merchants’
volumes and margins were healthy but dealing with the issues associated
with high-priced commodities was proving to be “stressful”.
Across in Russia, the government had introduced a VAT exemption
for all scrap metal-related operations at the start of 2006. The
state authorities believed this exemption would have a favorable
impact “but the measure was not welcomed by scrap companies”,
according to Oppenheimer.
According to Marc Natan of GDE Non-Ferreux-ECORE
in France, the president of BIR’s Non-Ferrous Metals Division,
the price of copper had soared almost 190% since the start of 2005
- only to be outstripped by the 200% leap in zinc prices. He cast
doubt on suggestions that the markets were being influenced more
by speculation than by the fundamentals. “The current upturn
is being fed first and foremost by insufficient supply and very
strong demand, particularly in emerging countries,” he told
He went on to warn once again of the need to combat
prohibitive customs restrictions and unfair tax rebates - “in
short, everything that prevents the free and transparent movement
of our products in accordance with international commercial law”.