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May 3, 2010 Dear Friend,
Finished hot-rolled sheet
prices in the US seem to drop to $670-$690 per ton due to 2
million ton March imports, a $30-$60 per ton drop in scrap
steel prices for May and numerous furnace restarts in the
US. Scrap steel prices fell with higher finished steel
imports, higher pig iron imports into the US and lower scrap
steel exports. Lumber output rose to 212 mm board feet, and
appears to be nearing shipments and Spring peak incoming
orders. Steel and wood stocks may decline.
In the past two weeks we
downgraded Temple-Inland and IP to Underweight and Domtar to
Neutral, leaving us with six Neutral and two Underweight and
no Overweight ratings for Forest Products.
Nickel is the only metals
market showing rapid inventory declines in a manner
encouraging to the bull side of the ledger. Copper and
aluminum inventories have been nearly unchanged in recent
months, and lead and zinc have continued to rise.
We have delayed raising our 2010
earnings estimates to reflect $3.35 per pound YTD copper
price averages and stayed with $3.00 estimates for now.
Exchange inventories remain within 2% of 793,440 tonne
February 2010 highs, which is both a poor Spring and a large
supply overhang.
Some uncertainty exists concerning the Chinese copper market due to 2009 February through September re-stocking. The WBMS reports Chinese copper demand rose to 7.14 mmt in 2009 from 5.13 mmt in 2008, 4.86 mmt in 2007 and 3.61 mmt in 2006. It reports a 58,300 tonne drop in January-February 2010 to annualize to 6.0 mmt. The CRU of London estimates the 2010 first-half at 3.32 mmt, 2009 at 5.99 mmt, 2008 at 4.89 mmt, 2007 at 4.66 mmt and 2006 at 3.95 mmt.
Thus, the CRU reports a 0.64 mmt higher 2010 consumption rate, a 1.15 mmt lower 2009 consumption rate, a 0.86 higher 2008 consumption rate, a 0.20 mmt lower 2007 and a 0.34 mmt lower 2006 Chinese consumption rate. The CRU attempts to estimate and correct for inventory building, and closely monitors end market activities such as wire and cable output, goods exports, auto, housing, appliance, power transmission and related end market activities. If the CRU adjustments are correct and an 8% demand gain occurs in 2011, the rebound in 2011 will be to 7.17 mmt or roughly a return to the 2009 apparent consumption rate that the WBMS reported.
The attached report includes a few pages on each major metals commodity market with references to all updated industry data.
Faithfully,
John C. Tumazos, CFA
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Copyright © 2008 John Tumazos Very Independent Research,
LLC
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