A recent UBS research report broadly supports the predictions made in our detailed metals review posted in a series of articles over the last few weeks on steel here, here, and here as well as here on base metals. UBS sees certain metals such as zinc, aluminum and copper being supported around current levels on the supply side by the marginal cost of production – the first zinc and copper mines are beginning closed or scaled back due to low prices and aluminum is very sensitive to any power disruptions or oil price volatility. Apart from short term volatility, the report does not expect any of these factors to push up the prices during this year providing the world does not slide into a global recession. Prices will however, move up next year the report suggests.
UBS sees spot iron ore prices on the other hand, continuing to weaken as demand softens in China. Both spot and contract prices should come more into line from their current 35% spot premium, reducing the miners justification for further massive increases next year. 10% UBS suggests is a likely iron ore increase in next spring’s round of price adjustments. We think a lot of water will pass under the bridge between now and then. Let’s see what global steel demand looks like in the new year. UBS is predicting steel prices will come down next year. We are already seeing further surcharge increases being quietly dropped in North America and base prices softening in Europe and Asia.