This is part one of a two part series examining key consumption trends over the next few years and how they will impact metals markets
Are we agreed the world has changed a little since this time last year? It’s an interesting question because you will get a different answer depending on who you speak to. Some (politicians and speculators) firmly believe that while we are certainly in a recession it is temporary and within 6 months we will be out of it and within 12 months we will be back to where we were this time last year ” minus the impending banking crisis. These are usually the people who also believe we are just seeing a temporary pause in the emerging market bull run on commodities. Then there are those that feel the world has fundamentally changed, that the years of conspicuous consumption, of debt fueled spending both personal and corporate, big cars and global trade are at an end, and we will never see their like again. Some of them hope we will evolve into a greener, more environmentally conscious, less avaricious society by turning against the culture of consumption.
The reality is probably somewhere between the two. Some things have certainly changed. It is our belief that at least for the next 2-5 years we will be operating in an environment shaped in part by the experience of the recent past, but how will that look? In no particular order let’s take a look at some trends and consider how they may impact the metals markets in the future. Automotive demand is way down and we expect it will take a long time to recover. It took a massive shock when oil prices rocketed and a shift from large SUV’s and pick-ups to sales of smaller, more fuel-efficient cars. It was just the boost hybrids needed to be taken seriously by middle America but interestingly hybrids have been hit harder than regular car sales during the first quarter of 2009 with sales down by 60%. Fuel costs have since come way down and show no signs of resurgence in the foreseeable future; in response vehicle sales have moved back up the size scale but in the first quarter it is small SUV’s, cross-overs and mid size cars that have done best according to the WSJ. Americans are not Europeans, they are wedded culturally to larger cars and though Hummers are definitely out, the reality is the swing to small will come back to a middle ground of larger sedans and more fuel-efficient SUV’s albeit in reduced volumes in line with wider consumer demand. The steel industry in particular but also copper wire and aluminum casting demand were hit badly by both the drop in car sales but almost as much by the sharp swing to smaller vehicles that consumed much less material. As the move to somewhat larger vehicles comes back, so will metal demand even though volumes may be slow to increase.
One change that will occur and is happening a lot faster than we would have expected 12-18 months ago is the US embracing the concepts of global warming and renewable energy. A combination of a changed administration and the shock of a spike in oil prices has hastened a change of emphasis that otherwise would have taken years to develop. Some $45bn is now earmarked in the stimulus package for subsidy and investment in these areas with the potential that in time the US could become a world leader in such technologies rather than a reluctant laggard. The impact for metals though will be limited. To the extent that wind farm or solar projects are resurrected by developers let down by the exit of VC and PE money remains to be seen. Of greater potential and long term benefit could be smart grid and energy conservation projects. Copper and steel consumption could be beneficiaries of significant investment in these areas but the technologies are still evolving and the financial demands are so great it is unlikely the impact will be huge or soon. Projects will be rolled out over the next ten years or more rather than our shorter 2-5 year time frame.
We will follow-up with part two tomorrow.
–Stuart Burns & Lisa Reisman