Nonferrous products look tight and costly in 2004

After seven years of decline, Purchasingdata.com 's Nonferrous Price Index rebounded 22% in 2003. The index closed 2003 at 109 (1/ '94=100), the highest level since 110.9 in December 1997. Base metals showed quite a bit of price action in 2003: U.S. spot copper

rose from an average 79¢/lb in January to $1.03 in December, the highest level since 1997. Zinc, used to coat steel sheet, increased from 39¢/lb to 48¢. Nickel, the primary ingredient in stainless steel, had the wildest ride of them all, trading at $3.58/lb at the start of the year and at a 14-year high of $7.70 by the end.

Looking at 2004, analysts and buyers are gearing up for additional price increases. Prices may jump due to tight supply caused by a recovery in trade and industry in the industrialized world, a continued construction and consumer spending boom in China, and economic growth in India and other expanding nations. "A faster, more synchronized pace of global growth means that Purchasingdata.com 's price index for commodity base metals prices will grow more than 18% in 2004," forecasts Patricia Mohr, vice-president and commodities specialist for Canada's Scotia Economics.

Australia's Bureau of Agricultural and Resource Economics predicted "buoyant copper prices" in 2004 "as demand again outstrips supply." Japan's Pan Pacific Copper sees reduced supply of smelted copper. Major nickel producers Inco and Falconbridge, both of Canada, expect major shortages of nickel because of the global expansion of stainless steelmaking. Shutdowns of major smelters worldwide worked to reduce excessive supplies of lead and zinc. In fact, the International Lead and Zinc Study Group says the lead market will face a shortage in 2004 for the first time since 1996.

"All the pieces are in place for base metals prices to continue their strong run in 2004," says David Humphreys, chief economist at Australia's minerals and energy multinational Rio Tinto. "The potent mix of bullish factors that spurred activity last year remain in place—China, speculative fund investment, raw material tightness, labor disputes and occasional technical problems at mines and smelters all are likely to be in evidence again this year."