Forecast Predicts Commodities to Rebound in Second-Half 2009

Global demand for energy and mineral commodities will not begin a gradual recovery until second-half 2009 in line with the world economy, the Australian Bureau of Agricultural and Resource Economics says in its latest commodities report.

ABARE is predicting world economic growth will be 2.5% in 2009, resulting in West Texas Intermediate oil prices averaging $59 a barrel.

“The weak economic outlook for 2009 is expected to result in falling oil consumption in (Organization of Economic Cooperation and Development) countries and slower growth in demand in non-OECD economies,” the report says.

World oil consumption is forecast to rise 0.3% in 2009 to 86.5 million barrels a day, compared with the average annual growth of 2% from 2004 to 2007.

ABARE predicts U.S. oil consumption in 2009 will decline 2.0% to 19.2 million barrels a day.

World steel prices have declined markedly since August, as the global financial crisis reduced construction activity.

“In addition, global demand for steel-intensive manufactured products, such as motor vehicles, has weakened significantly,” the report says. “Output from these sectors is being scaled back and, consequently, steel demand is weakening.”

China’s steel usage expected to grow 7% next year.

ABARE estimates world steel consumption grew 2% in 2008 to 1.47 million tons (1.35 million t). Despite decreased demand in the U.S., Japan and the European Union, world consumption is forecast to grow 1.8% in 2009 to 1.51 million tons (1.37 million t).

China’s steel usage increased 6% in 2008, and the country’s $586 billion stimulus plan is expected to boost steel consumption another 7% in 2009. India’s steel usage also is expected to increase in 2009 due to ongoing investment aimed at improving the country’s transport infrastructure.

ABARE estimates world steel production will increase by just 1.0% in 2008, down from 7% growth in 2007. World steel output in 2009 is forecast to rise 1.0%, with declines in Japan, the U.S. and Europe offsetting 6% growth in China.

The report predicts falling demand for steel will result in a large decline in iron-ore contract prices in 2009.

“Given the assumed decline in world economic growth in 2009, it is likely the spot price will remain weak in the short term, placing significant downward pressure on contract prices,” it says.

ABARE says the price of aluminum will average $2,560 a tonne in 2008, down 3% from 2007, after peaking at $3,300 a tonne in mid-July and falling to below $1,500 a tonne in December.

Consumption of aluminum in 2009 is expected to increase only slightly to 42.9 million tons (39 million t), after usage in 2008 climbed 3% to 42.4 million tons (38.5 million t).

ABARE anticipates 2008 year-end aluminum stocks will total 4.4 million tons (4 million t), or 5.4 weeks of consumption. With 2009 production forecast to exceed consumption for a third straight year, stocks are expected to rise to 5.5 million tons (5 million t), or seven weeks of world usage.

U.S. aluminum consumption in 2008 is estimated to have contracted 8.6%, and ABARE predicts it will fall another 6% in 2009 to 4.18 million tons (3.8 million t).

“This is a result of the flow-on effects from the global financial crisis and associated effects from declining housing construction, vehicle manufacturing and consumer spending,” the report says.

The price of nickel, after increasing to $33,300 a tonne in early March, plummeted 70% to $9,000 a tonne in December, for a forecasted annual average of $21,000.

Stocks are forecast to increase to seven weeks of world consumption, and, as a result, nickel prices are expected to fall another 54% in 2009 to average $9,750 a tonne.

World nickel production is estimated to slip 3% in 2008 to 1.52 million tons (1.38 million t). Consumption is estimated at 1.48 million tons (1.35 million t) in 2008 and 1.46 million tons (1.33 million t) in 2009.

In the first eight months of 2008, copper traded at a record average of $8,100 a tonne, but later dived to less than $3,200 as the global financial crisis took hold.

ABARE estimates the average copper price for full-year 2008 declined 2.0% to $7,000 a tonne and will drop 53.0% in 2009 to average $3,300. Copper stocks are forecast to increase by 363,750 tons (330,000 t) to three weeks of consumption by the end of 2009.

Consumption of refined copper is estimated to have increased marginally to 19.95 million tons (18.1 million t) in 2008, as demand from OECD economies contracted and growth in emerging economies slowed. Copper usage in 2009 is forecast to increase 1.0% to 20.2 million tons (18.3 million t).

World zinc prices fell sharply throughout 2008 to a 4-year low of $1,080 a tonne in November.

Zinc prices are expected to rise gradually in second-half 2009 but still are forecast to average lower than 2008. ABARE predicts prices will average $1,300, down 31% from the prior-year’s average.

World zinc production is anticipated to rise 1% in 2009 to 13.1 million tons (11.9 million t), down from a 3% increase in 2008. Zinc consumption – about 70% of it in the construction and automotive industries – is expected to climb 1.5% to 13 million tons (11.8 million t) in 2009, following a 2.5% gain in 2008.