Base Metals 1

Base Metals

Common, not noble, abundant

Aluminum, copper, nickel, lead, zinc, tin
Used in industry: transportation, construction, power

Major producing companies: UC Rusal, Chalco, BHP-Billiton, Xstrata, Norilsk, Mitsubishi,

Freeport, Alcoa, Vale, Anglo American, Fortescue, ArcelorMittal

Base metals are highly reactive and are therefore found in compounds in nature. The ore must be
extracted, crushed, melted, purified, and formed.

Iron Ore: 2,015 million MT/yr with about 27million MT of reserves Price $78 / MT (40 last year)
1350 million MT/yr seagoing trade

Production Imports
China 1300 (low Fe%) China 1000 (70% of all world imports)
Australia 825
Brazil 428 EU 230
India 130 Japan 130
Russia 110 Korea 72
Ukraine 70

95% of iron ore is used to make steel

Biggest base metal market but not a liquid, open market.
Vale, Rio Tinto and BHP Billiton sell on quarterly prices.

Until 2010, prices set annually. Then Chinese demand exploded and led to spot purchases from
India. First Quarterly and now China buys Monthly
Platts Steel Index or Metal Bulletin prices

Dalian Commodity Exchange: 5 million lots/day (100 MT per lot)

No physical, lots of churn and speculation (Mom and Pop day traders)

SGX has iron ore futures. no physical. Settled against montly Steel Index prices

(SMX) has launched the world first global iron ore futures contract, based on the Metal Bulletin Iron
Ore Index (MBIOI) which utilizes daily price data from a broad spectrum of industry participants and
independent Chinese steel consultancy and data provider Shanghai Steelhome's widespread contact base
of steel producers and iron ore traders across China.[10] The futures contract has seen monthly volumes
over 1.5 million tonnes after eight months of trading.[11]

CME, SGX, LCH, NOS and ICEX (India) all clear ore swaps.
Futures market is expanding quickly as market opens.
 Base Metals 2

Represents 51 % of global dry bulk shipping (of which 63% went to China)

Aluminum: Al about $1700/MT (1500 last year)

Most abundant metal on earth (9% of the solid surface of the planet)
Mainly found as bauxite
Only in use for about 160 years

Production: 61 million MT per year (of which

China 32.2 million MT (16.8 three years ago) Chalco

Russia 3.50 (3.50) Rusal
Canada 2.90 (2.94) (no bauxite)
UAE 2.30
India 2.35 (1.73)
USA 1.60
Australia 1.65 (1.40)
Norway 1.33
Bahrain 0.960
Qatar 0.640

Consumption 00 million MT
China 31 million MT (20)
USA/Canada 5.9 (5.2)
Europe 8.4 (6.0)
Japan 3.8

Extremely light metal, good conductor, highly resistant to corrosion

Used for transport: planes, cars, bicycles (36% of market)
Packaging: cans, aluminum foil, boxes (20%)
Construction (16%), electricity, consumer goods

Aluminum production requires huge inputs of energy (electricity) which explains why places like
Iceland, Dubai and Bahrain are big aluminum production centers

Price Factors:
Construction and Aviation
Macro-economy
USD
Speculation

Copper: Cu about 2.52 $/lb or 5500 $/MT ($4600)

Been mined for over 10 000 years

 Base Metals 3

Malleable, ductile, conductor

Used principally for wires and cables
(A car has about 1.5 km of wires or from 20 to 40 kg)
Pipes and forms
Compounds: with Zinc to form pewter
With Tin to form Bronze

Production: 20.0 million MT/yr (mines) Refined Copper 23 million

Chile 5.8 million MT 7.9
China 1.75 2.6
Peru 1.60 ---
USA 1.25 1.2
DRC 1.00 0.70
Austr. 0.96 0.50
Russia 0.74 0.75
Canada 0.70 ----
Japan 1.4

Consumption:

Refined Copper 23 million

China 11.3 million MT
USA 1.8
Germany 1.3
Japan 1.1
S. Korea 0.8
Italy 0.6

Supply and Demand factors:

High cost of new mines
Depletion of existing ore (quality of ore) in Americas
High water use
High use of coal for power at mines

Global copper demand is about 23 million tonnes which means about 3 million tons is from
recycling.
Major factor for copper demand: construction.
Every new house in the West has about 200 kg of copper
Every village needs to connected to the grid.

Strong link to population and GDP:

1950 2.5 billion people and 1.2 kg/person
2015 7.2 billion people and 3.2 kg/person
 Base Metals 4

Copper is called Dr. Copper because it is so fundamental. If copper demand is strong, then the
world economy is growing. Copper peaked at about $10 000 before the Credit Crash then repeaked
there in 2010.

Futures:
LME (London Metals Exchange)
Comex (Nymex)
Shanghai Metals Exchange

Zinc: Zn $2300/MT ($1500/MT peak last year and this year)

About 13 million MT/year
Construction, transportation, electrical goods
Galvanizing (anti-corrosion) : 47%
Alloys : Brass and Bronze 19%, others 14%
Zinc oxide: pigment in white paint
American pennies are 98% zinc with a small layer of copper leaf

Production:
China 5 million Mt
Australia 1.6
Peru 1.4
USA 0.85
India 0.83

Nickel: Ni about $10200/MT ($12000/Mt)

2.4 million MT/yr

Philippines 320 KT
Russia 265
Indonesia 170
Canada 240
New Caledonia 190
Australia 235
65% goes to making stainless steel
14% for nickel-copper alloys

Europe produced one-third of world nickel (but that includes places like New Caledonia)

Lead: Pb about $2040 ($1600/MT

5.0 million MT/yr (50% China) (5 million recycled)
71% of market is for batteries
12% pigments and chemicals
 Base Metals 5

6% goes to ammunition (that amounts to 480,000 MT or about 64 billion 9mm rounds)

Tin: Sn $21,150 / MT ($15 000 / MT)

300,000 Mt/yr (100 0000mt in China, 50 in Indonesia)
Solders: 32%
Tin plate: 27%
Alloys: 14%
Most glass is made by floating molten glass on molten tin!

Ten companies control most tin production:

Yunnan Tin China
PT Timah Indonesia
Minsur Peru
Malay China
Malaysia Smelting Malayasia
Thaisarco Thailand
Yunnan Chengfeng
Liuzhou Tin
EM Vinto Brazil
Gold Bell China

LME: London Metals Exchange

Dates back to 1571 and the Royal Exchange
1877: formalization of the LME following the Industrial Revolution and demand for metals
Imports of base metals from South America
Contract based on delivery time for copper from S. American mines

Ring Trading: member sit in a circle (6 m wide)

Most contracts trade during the specific ring time
Each ring is 5 minutes
Contract size is bigger than most exchanges because it is a very physical exchange
One lot of copper is 25 Mt
The LME contract closely resembles a cleared forward more than a future since the delivery
dates follows a different and prompt schedule (next day or TOM, Cash out to 3 months, then weekly
delivery…all rolling on a daily basis. So the contracts can be settled for any day up to three months
forward but are cleared.
Contracts trade every day out to threee months then once a week to 6 months, then monthly .
Contracts go out as far as 123 months.

Delivery is in any official depot: US, Europe, Middle East, Asia

General Price Factors for Base Metals:

Macro-economy: base tend to be cyclical as the follow the underlying global economy.
 Base Metals 6

For that reason, copper is called Doctor Copper since it tells the true health of the world
economy better than doctored stats from governments or banks.

USD: as usual
CHINDIA: China consumes 40% of copper . Chindia is responsible for much of demand growth
in base metals. The West is de-industrializing.
Capex: mining and production of base metals is a big business and requires large, long term
investments. Environmental concerns are a new factor
Substitution: medium and long term
Supply interruption: base is less susceptible than oil
Investor demand: new factor as base is touted as alternative investment; hedgies and spec
Level of Economic Development: each stage of economic development has a very different
consumption profile of base metals.