Asian base metal outlook grim in 1998, dealers say

Asian base metal outlook grim in 1998, dealers say

SINGAPORE (Reuters): The financial contagion that spread like a deadly virus from Indonesia to South Korea will hammer Asian base metal demand in 1998, regional dealers said yesterday.

"The outlook is really gloomy," a senior dealer for a European metal trading company said.

"People are still buying pots and pans, but they're not building 30-story buildings," the general manager of a Western metal trading firm added.

Consumption by Korea, which has the world's 11th largest economy and is the latest victim of the crisis which erupted in early July, is expected to plunge sharply.

Traders estimate its copper purchases, seen reaching 600,000 tonnes in 1997, will fall by up to 25 percent. Aluminum demand of around 700,000 this year, is also seen taking a hit.

"Aluminum demand could drop by half easily. They (the Koreans) may not have the money to buy the metal," one said.

The Chilean Copper Commission (Cochilco) recently estimated copper stocks will rise to 3.7 weeks of consumption in 1998 from 3.1 weeks in 1997.

"A surplus of copper...should swell as the crisis conditions now affecting many Asian economies translates into lower demand for copper," Cochilco said.

A senior aluminum dealer said Asian demand for the metal will contract in 1998 to around 5.30 million tonnes from 5.35 million this year.

"It's not really a catastrophe, but it reflects the fears and doubts in Asia," he said. "Business elsewhere is OK, especially in the U.S. and Europe. Our region is really standing almost alone with a negative consumption figure."

His company estimates total world consumption of aluminum in 1998 will rise by just under 2.0 percent to around 22.02 million tonnes. In contrast, consumption this year shot up by 4.2 percent to 21.61 million.

The trader said business in Indonesia, Thailand, Malaysia and the Philippines will be down sharply in 1998 as firms pull back and keep inventories to a bare minimum.

In Indonesia, aluminum purchases are seen falling to about 50,000-60,000 tonnes in 1998 from over 100,000 this year. Demand for zinc, on the other hand, is seen dropping by 50 percent outside of Japan and Korea.

"In my budget, I estimate a 50 percent drop in zinc consumption for the first half of next year," a zinc trader for a Japanese trading company said, adding buyers around Southeast Asia were slashing their purchases by about 30-40 percent.

He said Asian zinc consumption outside of Japan and Korea will probably plunge to 50,000 tonnes against about 100,000 tonnes in 1997.

The big question mark in Asia's base metal business, as usual, is China.

Metal brokers Brandeis said in a report last month "we do expect a slowdown in consumption of metals in Southeast Asia...on the upside, we expect China to remain an important force in demand for metals."

But other traders were less optimistic about China's ability to maintain a strong presence in the business.