Oct. 28 Rio Tinto Group, the world's third largest mining company, said prices for metals including aluminum and copper may rebound next year as China's economy stabilizes and unprofitable producers shut capacity.
Demand and prices may get a ``quite significant bounce'' as China's economic growth steadies at 9 percent a year and high-cost producers curtail output, Vivek Tulpule, Rio Tinto's chief economist, said yesterday in an interview in Chicago.
Copper plunged 49 percent in the past year on the London Metal Exchange, and aluminum dropped 20 percent at the same time that metals producers' energy and raw-material costs increased.
``I'd be very surprised to see prices hanging around these levels too long into 2009,'' Tulpule said. ``Historically, when prices get to this level relative to costs they are at or near a trough. You pick up from this point after a few months.''
About 25 percent of the world's aluminum industry is losing money after prices fell almost one-third since July, Tulpule said. Expected power cuts in China will likely put renewed pressure on producers to curb output in coming months, he said.
Costs to develop and produce metals have accelerated because of the difficulty in finding new deposits, a scarcity of equipment and rising energy prices.
Alcoa Inc., the world's third-largest aluminum producer, said caustic soda costs in the third quarter were 88 percent higher than a year earlier. Calcined coke more than doubled, and fuel oil rose 77 percent, the company said.
Production Cuts
Aluminum Corp. of China Ltd., the nation's biggest producer, has already said it's slashing annual production capacity by 18 percent and may consider additional cuts because of falling prices and demand. Rio Tinto estimates that about 90 percent of China's aluminum producers are losing money.
China's economy grew at a 9 percent annual rate in the third quarter, the slowest pace in five years as the worst financial crisis since the Great Depression cut demand for exports. The economy probably will stabilize at that rate next year, creating demand after ``rapid deceleration'' from a clip of 12 percent, Tulpule said.
``If your economy slows very sharply -- even to 9 percent growth -- that speed of deceleration actually has a big influence on commodity consumption,'' Tulpule said. ``It's happened so fast, within just a few months. I think that's been the single largest source of weakness in commodity markets.''
Output Cuts
Aluminum Corp, also known as Chalco, and 19 domestic rivals agreed to cut output by 10 percent in July. The largest producers in China had promised to cut production because of a power shortage and weakening demand.
Metal prices have plunged because of slower demand, with the Reuters/Jefferies CRB Index, a gauge of 19 commodities, slumping 37 percent in the past three months.
Copper has plunged 37 percent in October on the Comex division of the New York Mercantile Exchange, heading for the sharpest monthly drop since 1988, when the metal started trading in New York. About $12.2 trillion has been erased from the value of global equities this month as $680 billion of writedowns and credit losses triggered a credit freeze. About 10 percent of copper output is now unprofitable, Tulpule said.
Copper futures for December delivery rose 11.85 cents, or 7 percent, to $1.805 a pound yesterday in New York, the biggest gain for a most-active contract since Oct. 13. The metal gained $250, or 6.6 percent, to $4,020 a metric ton ($1.82 a pound) in London.
Aluminum gained $67, or 3.4 percent, to $2,038 a metric ton.
``You can't sustain situations where people are losing money for long in these markets,'' Tulpule said. ``Prices are high, but it's a structural trough when you compare costs and prices.''
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