It would be advisable to offload metals until after the dust has settled
later today and come back tomorrow to review the situation.

31 August 2006

LONDON (SHARECAST) - Credit Suisse has cut its view on the steel sector to market weight from overweight warning that the industry is about to enter a cyclical downturn.

The Swiss broker did offer a ray of light though, saying Anglo-Dutch steel maker Corus is one stock that should remain interesting going into a macro slowdown.

Chalco Cuts Alumina Price 22%, in Line With Imports (Update1)

By Chia-Peck Wong

Aug. 31 (Bloomberg) -- Aluminum Corp. of China Ltd., the world's second-biggest alumina producer, will cut the price of the raw material used to make aluminum by 22.4 percent tomorrow, the second time in a month that the company lowered the price.

The company, known as Chalco, will cut the alumina price to 3,800 yuan a metric ton ($478), the same level as the imported price, from 4,900 yuan, to bring them in line, the Beijing-based company said in an emailed statement today. Chalco last cut prices by 13 percent on Aug. 4.

Alumina prices have dropped 56 percent since March to $275 a ton, according to data from Metal Bulletin, as companies increased production to meet China's rising demand for the raw material refined from bauxite. China relies on imports for about half of its alumina demand, while Chalco and smaller producers supply the rest.

China's domestic alumina production surged 50 percent to 7.1 million tons in the first seven months this year. China, the world's biggest producer and consumer of aluminum, imported 3.95 million tons of the raw material during the same period.

31 Aug 2006
bbj.hu

Russia to create world's biggest aluminum maker


Russia's two biggest aluminum companies plan to combine, creating the world's largest producer of the metal and giving President Vladimir Putin influence over world aluminum prices. Putin approved a proposal for OAO Russian Aluminium, known as Rusal, to buy smaller rival OAO Sual Group, said a presidential spokesman who asked not to be identified because the accord hasn't been announced. Swiss commodity trader Glencore International AG's alumina assets will also be included in return for a stake in the new company, he said. By adding Sual, valued at $3.3 billion on Russian stock exchanges, Rusal owner Oleg Deripaska will create a company that pours more aluminum than Alcoa Inc., now the world leader. The government's long-term drive has been to establish national champions, as we have seen in energy, said Tim Brenton, political analyst at Renaissance Capital in Moscow. It's Russia's long-term strategy to project power abroad through these companies. Rusal, Sual and Glencore signed a non-binding accord Aug. 25, the Financial Times reported earlier yesterday. Rusal, controlled by Deripaska through his holding company, Basic Element, will buy Glencore's alumina assets by issuing new shares and will own 64.5 % of the new company, with Sual 21.5% and Glencore 14 % respectively, the FT said.

Soaring commodity prices have caused metals and mining companies worldwide to consolidate, with more than $100 billion of takeover offers made this year. Aluminum prices today rose 1% to $2,495 a metric ton, up 9.6% this year, trailing the 71% jump in copper and a more than doubling in nickel. Aluminum's gains have been limited as China, the world's largest producer and consumer of the metal, raised production and curbed imports. The combined Russian companies would produce about 11% of the world's aluminum, excluding recycled material. Consolidation in metals follows Putin's drive to place energy assets under the state-controlled oil and gas companies, OAO Gazprom and OAO Rosneft Oil Co. Putin met Deripaska three weeks ago, one of the Russian leader's regular gatherings with the country's most powerful businessmen. Rusal's owner was added yesterday to the committee organizing Russia's bid to host the 2014 Winter Olympics in the Black Sea resort of Sochi. We expect and hope that Mr. Deripaska will take the combined company public, said Vladimir Zhukov, senior analyst at Alfa Bank in Moscow. He'll make much more money having his company public.

Combined, Rusal and Sual produced 3.71 million tons of aluminum last year, surpassing the 3.55 million tons at New York-based Alcoa. Alcoa, with 2005 revenue of $26.2 billion, will remain the largest by sales. The Russian companies had combined sales last year of $9.4 billion, based on data posted on the companies' Web sites. Rusal has been seeking to acquire companies that produce alumina, the raw material used to make aluminum. Glencore, the world's largest commodities trader, buys and sells base metals including aluminum, nickel, copper, zinc and lead. The company had sales of $91 billion in fiscal 2005, up from $71 billion a year earlier, and has stakes in mines, smelters and metals refineries.

Rusal is short of bauxite, the raw material refined into alumina. Sual, which produces two-thirds of Russia's bauxite, doesn't have enough capacity to process all of it into aluminum. By acquiring Glencore's aluminum assets, Rusal will gain alumina production in Jamaica and Ireland, which can produce about 4.75 million tons a year. About two tons of alumina are used to produce one ton of aluminum. Alfa's Zhukov said the deal represented an ideal way for Glencore to get cash for its aluminum business. Rusal needs the security of alumina supply, said Peter Richardson, chief metals economist at Deutsche Bank AG, in Melbourne. Any merger will go far in entrenching Rusal's growth in alumina. Russia benefits from low prices for energy, which generally represent 25% to 40% of the cost of producing aluminum. Rusal's two biggest smelters get their electricity from Soviet-built hydropower plants.

Putin is using cash from record oil prices to increase Russia's industrial power and boost state control of key industries. Oil and gas assets are being consolidated into state-controlled Gazprom and Rosneft, while state-owned weapons exporter Rosoboronexport said Aug. 12 it has agreed to buy VSMPO-Avisma, the world's biggest titanium producer. Government support also extends to private business. Putin backed a plan in May for steelmaker Severstal to merge with Luxembourg's Arcelor SA, creating the world's biggest steel company. The merger fell through in June when Mittal Steel Co. won the takeover battle. Deripaska is Russia's sixth-richest man, with a fortune Forbes magazine estimates at $7.8 billion. He has extensive interests in the automotive industry, owning OAO GAZ, a producer of light commercial vehicles which bought British van-maker LDV Ltd. on July 31. Sual is owned by Viktor Vekselberg, Russia's fourth-richest man with $10 billion, according to Forbes. The combined company may sell shares in London within three years, the FT said. It will be chaired by Brian Gilbertson, the former BHP Billiton Ltd. chief executive officer who heads Sual, and run by Rusal CEO Alexander Bulygin, the newspaper reported.

Rusal announced yesterday it plans to complete a buyout of minority shareholders in its Russian plants by the end of this year. The plan includes the Krasnoyarsk, Bratsk, Novokuznetsk and Sayanogorsk aluminum smelters, the Achinsk and Boksitogorsk alumina refineries, and the All-Russia Aluminium and Magnesium Institute, the company said. Sual shares last traded on Aug. 28, when they fell 1.5 % to $1.29. Rusal's 7.2% ruble-denominated bonds advanced 0.1 or l ruble per 1,000 rubles ($37.40) of face value on the Micex exchange in Moscow as of 3:58 p.m. The yield declined 0.05 percentage points. (Bloomberg)

1 September 2006 - Copper, nickel prices may plunge, Westpac forecasts

Source: Bloomberg


Copper, nickel and other base metal prices may plunge next year as slower U.S. growth curbs demand and mine supplies increase, Westpac Banking Corp. says.

The spot price of nickel, used to make steel rustproof, could decline 38.5 percent next year while copper, used in wires and pipes, could fall 29.2 percent, the Sydney-based bank said in its quarterly commodities report sent by e-mail today.

The Reuters/Jefferies CRB Index of 19 commodities fell to a five-month low yesterday, and is down more than 10 percent since reaching a record on May 11. The U.S. said yesterday gross domestic product growth slowed to an annual rate of 2.9 percent in the second quarter from 5.6 percent in the first three months.

"The key for us is the downturn in U.S. dwelling activity and the impact of a more cautious U.S. consumer," Westpac's economists including Justin Smirk said. "In 2007, industrial production growth will turn from being a pillar of base metal price inflation to a drag."

Commodities have rallied since 2001, led by demand from China and the U.S. for raw materials to build homes, autos and appliances, and as decades of underinvestment in mines led to supply shortages. Prices also surged as investment funds, helped by low interest rates, bought metals seeking better returns than bonds and stocks.

Metals prices would peak this year and fall "through 2007 as demand growth slows and supply growth gathers momentum," Westpac said. Copper futures in London rose to a record $8,800 a ton in May, and nickel for three-month delivery surged to $29,950 this month, its highest level in at least 19 years.
Falling prices

A survey of brokerages and research companies by Canberra- based Access Economics in July showed analysts expect commodities prices to fall as much as 45 percent over the next two years, due to expanding capacity.

Spot copper prices could average $6,744 a ton this year, before falling to $4,775 in 2007, according to Westpac's forecast. Copper for immediate delivery in London has averaged $6,491.72 this year.

Spot nickel prices could average $22,919 a ton this year, and drop to $14,100 in 2007, the bank said. Nickel has averaged $20,118 so far this year. Aluminium prices could average $2,526 a ton, and then decline to $2,175 next year, Westpac said.

Westpac raised its base metal prices forecasts by an average 6.5 percent for this year due to supply disruptions as companies including BHP Billiton Ltd., the world's largest miner, had to halt production due to strikes.
Inventories

Commodity prices will "broadly track sideways to the end of 2006," Westpac said. Low inventories and supply disruptions caused by strikes mean prices could still spike, it said.

"Given that inventories are expected to remain below critical levels until 2008, base metal prices remain hostage to small movements in inventories for some time," the bank said.

Rising interest rates globally will help to slow raw materials demand, Westpac's report said. The U.S. Federal Reserve raised interest rates 17 times over two years before pausing on Aug. 8. New home sales in the U.S. fell more than expected in July, and the number of unsold houses climbed to a record, according to government data on Aug. 24.

The Bank of Japan raised interest rates in July, the first time it has done so since August 2000. The European Central Bank has raised borrowing costs four times since early December.

Westpac's view doesn't tally with that from Charles "Chip" Goodyear, chief executive officer of BHP, who said Aug. 23 that while the U.S. economy would slow, the impact would not be significant.

"The U.S. is quite a service-based economy, and so there will be a slowdown there and it will have some impact. But again, we expect it to be moderate," Goodyear said. There's "still, a very strong environment, particularly given the supply side."

Slowing growth in the U.S. may be offset by continued expansion in Europe and Japan, Goodyear added.