Currencies crisis swallows Asian metal demand
Currencies crisis swallows Asian metal demand
SINGAPORE (Reuter): Southeast Asia's currency crisis has hammered base metal demand, although there was light buying in Indonesia following Jakarta's market-friendly reforms aimed at restoring economic confidence, traders said yesterday.
"It's very bad. Business shrank," a senior dealer for a Japanese metal trading house told Reuters. "Malaysia, Thailand and Indonesia wanted to buy, but they could not do so."
Traders said consumption by Indonesia, which used to buy around 10,000 tons each of zinc and aluminum every month, dived to around 1,000-2,000 tons a month for both metals.
"A lot of the people in this region are buying cheaper-grade material like off-grade zinc instead of the special high grade. It should remain generally weak because of the currency situation. It's a poor year," one trader said.
Waves of speculative attacks sent Southeast Asian currencies plumbing fresh lows over the past few weeks and triggered a heavy sell-off in stock markets in Malaysia, Indonesia, Thailand and the Philippines.
An aluminum producer said the situation in Indonesia appeared to have stabilized, especially after Jakarta announced measures to boost investor confidence in its economy.
"Indonesia is picking up slightly. They are suffering, but business must go on," he said, adding fourth quarter aluminum supply contracts for consumers there should be quoted around US$85-$90 a ton CIF Jakarta.
Thailand appears to be worst hit.
"I don't know how many people are willing to sell to Thailand because they are not sure how they are going to get paid. Most of the buying there has been postponed," a dealer said.
"Thailand is simply absent from the market. There is no demand. They are the ones who have suffered the most," one trader added.
But one analyst said consumers around the region will eventually be left with no choice but to absorb the higher cost of metal imports.
"These countries have quite a lot of infrastructure to do. The import cost will be quite expensive, but they really need the raw materials," the analyst said.
Traders said copper, aluminum and zinc were badly needed in Southeast Asia to build highways, power plants, telecommunication facilities and houses.
Base metal business will remain flat over the short-term until the currency woes bedeviling the region eases somewhat.
"We have to wait and see how the whole currency turns out," a dealer said.
More immediately, negotiations for fourth quarter aluminum contracts in Japan were concluded recently with premiums set at lower levels, dealers said.
"It was set at $75-$76 (a ton CIF)," one trader said. "The talks are over in Japan."
The new premiums are down sharply from a base of $87-$90 in the third quarter due to weak demand. The Japanese premiums are normally used as a benchmark for supply contracts in other countries in Asia.
Fourth quarter premiums in South Korea were pegged at around $80 a ton CIF Pusan, down from $90-$95 in the third quarter, while those in Taiwan will probably be set at around $80-$85 a ton CIF Kaoshiung and Keelung against the previous quarter's $90- $95.