By Karen Norton and Eric Onstad
LONDON, Jan 29 (Reuters) - Parts of the mining and metals
industry such as ferro-chrome, iron ore and steel have slashed
output on tumbling demand and prices which should stand them in
good stead for an eventual upturn.
But industrial metals such as aluminium and nickel still
need to do more to combat oversupply.
Global ferro-chrome production has almost halved from
year-ago levels and December steel output was down by a quarter
because material could not find a home as demand slumped.
"Those markets that have cut the most will ... stop getting
worse and recover sooner. Ferrous metals are a bit further
through this," said Andrew Keen of Bernstein Research.
Prices for aluminium, used in cars and construction, as well
as nickel, used in stainless steel products such as fridges and
washing machines, were expected to lag in a recovery because of
high and rising stocks.
At 1416 GMT the London Metal Exchange (LME) three-months
aluminium price was indicated at $1,348 a tonne, having fallen
to its lowest levels since October 2002 last week.
Aluminium price-induced reductions are put at around 13
percent and nickel at one-fifth of global capacity.
Platinum producers also need to do more, analysts say, but
the high costs of scaling back are making mines reluctant to
close for now.
In some markets output cuts have been vast.
Production of ferro-chrome, a key component in stainless
steel, has been slashed by about 45 percent from year ago
levels. Companies were forced to respond quickly to the downturn
because they did not have an exchange to stock surplus material.
Steel output was down around 24 percent in December from
year-ago levels as cutbacks in the 1.3 billion tonnes market
accelerated due to crumbling demand from car makers and the
construction sector. Losses of raw material iron ore were
estimated to be of a similar magnitude.
The copper market should also be well-placed in a recovery
as ageing mines and technical problems continue to hamper output
growth despite the lack of price-related curtailments.
Rawlinson estimated that only about 7-8 percent of global
capacity had been curbed so far.
But project delays and problems at existing mines had taken
out about 1.5 million tonnes of planned mine output when
compared with year ago forecasts, Rowley said.
ALUMINIUM STOCKS
Analysts estimate that up to 5.5 million tonnes of aluminium
production capacity has been cut out of a 40.0 million tonnes
per year market.
But the huge inventory overhang, with London Metal Exchange
(LME) stocks at a new historic peak and the threat of restarts
could keep prices under pressure for years.
"There's clearly plenty of capacity that can come back on
stream relatively quickly and hamper the price in any upturn,"
Rowley said.
Nickel was deemed to be in a similar position.
COMPANIES
Major companies in markets that have made the biggest cuts
will not necessarily benefit most once prospects brighten,
instead those sitting on cash or with very little debt will gain
most.
Bernstein's Keen thought steel companies and iron ore
producers, such as BHP Billiton should do better than most in
2009. Others said BHP's relatively small debt compared with some
rivals was an advantage.
But analysts said the fact that producers were so
diversified meant that the strong performance of one particular
metal would not make a big impact.
Rio Tinto, for example, would benefit from a recovery in
iron ore and copper's brighter prospects further ahead, but this
would be in part offset by its exposure to aluminium.
On Wednesday, Rio Tinto confirmed it may issue shares to
help pay off $39 billion in debt. On Thursday Swiss-based miner
Xstrata said it plans to raise about $5.9 billion by issuing new
shares to pay off some of a heavy debt burden.
Some companies may not survive to see the upturn. But the
end may be in sight, analysts say.
"Earnings could continue to decline for some time, but once
you've had all the substantial write-downs and provisional
pricing adjustments things should start to look better," Fairfax
I.S. mining analyst John Meyer said.
(Edited by Peter Blackburn)
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