Metal Prices Are Plunging

Metals prices are tanking and the reason is not a good one – the economy continues to weaken.

Steel prices have dropped 20 percent in the past three weeks, a sharp reversal from the pattern from 2003 to 2007 when Chinese demand sent prices soaring. Now steel from China and other countries is pouring into the United States at cut-rate prices because of weak local demand.

Aluminum prices on the London Metal Exchange went from $3,292 per metric ton in July to $2,340 in early October, a 29-percent drop. Alcoa laid off 770 workers at its Rockdale aluminum smelter, further curtailing production. Ohio Valley Aluminum closed its plant in Boonville, IN. 

Almost 69 percent of economists think the economy has started or will enter a recession this year, according to a survey released today by the National Association for Business Economists. That compares to 56 percent in May. "Business economists have become more negative on the economic outlook for the next several quarters as a result of the tightness in credit markets and weakness in consumer spending, expecting growth to stall in the fourth quarter," says Chris Varvares, president-elect of the NABE and president of Macroeconomic Advisers. "If financial conditions fail to improve quickly, near-term economic prospects could deteriorate markedly," he warned.

Other materials prices are also affected by the economic downturn:

• Copper prices dropped from $8,985 per metric ton on July 4 to $6,221 on October 3, according to transaction data at the London Metals Exchange. That's a drop of 31 percent in just three months.

• Nickel prices have been dropping since March 2007, as already reported by Design News. Nickel cash prices were set at $15,755 in early October, down a whopping 53 percent in a little more than 18 months. Declining appliance sales as well as weak demand from China are the main reasons.

• Even titanium, the aerospace superstar, is struggling, in part because of the protracted strike at Boeing. ATI Allvac, a supplier, cut its aerospace titanium surcharge 12 percent.

Analysts expect prices to remain weak well into next year. Tarang Bhanushali, Metal Analyst for India Infoline, forecasts another 10-percent drop for aluminum and copper next year. Expectations of further weakness will push OEMs to keep inventories at a bare minimum. Steel is in the same boat. "We expect (steel prices) to be flat for the rest of the year and a 10-percent fall next year," says Bhanushali.