Abderrahim, Kaouther

John Anyanwu

Letsara, Nirina

English

Research Papers in Economics

        The African Development Bank Group 
      Chief Economist Complex 
 
 
 
 
 
 
 
 
 
 
   
 
 
Contents: 
 
1.  Introduction 
 
2.  Production and Export 
of Base Metals in 
Africa  
 
 
3.  Base Metal Price 
Trends 
 
 
4.  Price Divers and 
Outlook 
 
 
5.  Conclusions 
 
1.    Introduction  
Africa is well endowed with abundant 
mineral  resources.  It  hosts  about  30 
percent of global mineral reserves and 
produces  more  than  60  metal  and 
mineral  products  and  is  a  major 
producer  of  several  of  the  world’s 
most  important  minerals  and  metals 
including  gold,  platinum  group 
minerals  (PGMs),  copper,  nickel, 
diamonds,  aluminium,  uranium, 
manganese,  chromium,  bauxite  and 
cobalt.   
 
Mineral  resources,  as  other  natural 
resources, are critical to the economic 
and  social  development  of  African 
countries.  They  play  a  fundamental 
role  in  underpinning  the  growth  of 
many  African  countries  and  in 
contributing  to  African  people’s 
welfare.  Broadly,  mineral  resources 
can  contribute  to  economic 
development in many ways: attracting 
foreign  direct  investment  (FDI), 
creating  employment  and  income 
generating  opportunities,  generating 
government  revenues  and  foreign 
exchange  earnings,  cluster 
development, as energy sources and as 
locomotives for local socio-economic 
development, technology transfer and 
innovation and development of related 
sectors  and  competent  institutions. 
However,  mineral-dependence 
sometimes  brings  economic  and 
political problems. It can result in the 
“trap of specialization”, environmental 
degradation,  misguided  investment 
policies  as  well  as  being  a  source  of 
corruption,  “Dutch  disease”,  threat  to 
the  livelihood  of  indigenous 
communities, and conflict financing. 
 
This  brief  examines  the  case  of  base 
metals such as aluminium, copper, lead, 
nickel, tin, and zinc. It focuses on the 
production and export of these minerals 
as  well  as  their  price  movements  and 
outlook.  
 
2.      Production and Export of 
Base Metals in Africa 
Africa’s share of global production and 
export  of  base  metals  remains  at 
meagre  levels  (Tables  1,  2  &  3). 
African production of major metals has 
ranged  from  about  5%  of  global 
production for aluminium and copper to 
just  over  2%  for  lead  and  zinc. 
Similarly,  exports  from  African 
producers  as  a  percentage  of  global 
exports remained on average below 3%, 
with tin recording the lowest share of 
less than 1% (Table 2).  
 
Commodity Market Brief 
Volume 1, Issue 3 
23 July, 2010 
 
Base Metal Production in Africa and the Global 
Market Situation  
 
Prepared by the following staff:  John C. Anyanwu (j.anyanwu@afdb.org) ; Nirina Letsara 
(n.letsara@afdb.org) ; Abderahim Kaouther (k.abderrahim@afdb.org).  
    
 
  Mthuli Ncube 
  m.ncube@afdb.org 
  +216 7110 2062 
 
  Charles Leyeka Lufumpa 
  c.lufumpa@afdb.org 
  +216 7110 2175 
 
  Leonce Ndikumana 
  l.ndikumana@afdb.org 
  +216 7110 2076 
  
 
   
 
 
 
“Mineral resources 
play a fundamental 
role in underpinning 
the growth of many 
African countries and 
in contributing to 
African people’s 
welfare.” 
Base Metal  Production  2004  2005  2006  2007  2008 
Aluminum 
 
Value  1,717  1,749  1,843  1,823  1,718 
Share  5.7  5.5  5.4  4.8  4.4 
Copper 
 
Value  608  662  736  810  n.a. 
Share  4.1  4.4  4.9  5.3  n.a. 
Lead 
 
Value  88.6  111.0  113.1  98.6  98.4 
Share  2.8  3.2  3.1  2.7  2.6 
Nickel 
 
Value  85  90  89  83  70 
Share  6.2  6.2  5.7  5.0  4.4 
Tin 
 
Value  11,026  12,006  10,648  10,752  n.a. 
Share  3.6  3.9  3.6  3.3  n.a. 
Zinc 
 
Value  209.9  203.1  183.7  175.4  n.a. 
Share  3.1  3.0  2.8  2.5  n.a. 
Source: AfDB Statistics Department and US Geological Survey. 
http://minerals.usgs.gov/minerals/ 
 
Table 1: Base Metal Production (Thousands of Metric Tons) and share in Global 
Production (%) 
 
Base Metal  Exports  2005  2006  2007  2008 
Aluminum 
Value  3302  4662  5001  4018 
Share  3.2  3.4  3.2  2.5 
Copper 
Value  2087  3146  4366  3960 
Share  2.7  2.3  2.9  2.6 
Lead 
Value  87  99  216  176 
Share  2.7  2.4  3.0  2.6 
Nickel 
Value  87  99  216  176 
Share  2.6  2.6  2.4  2.0 
Tin 
Value  10  9  10  5 
Share  0.3  0.2  0.2  0.1 
Zinc 
Value  220  619  617  306 
Share  2.5  3.2  2.8  2.4 
Source: AfDB Statistics Department and UN COMTRADE Database 
 
Table 2: Africa's Exports of Base Metals: Value (Million US$) and Share of Global 
Export (%) 
 
Table 3: Export Value of Some Metals as a % of GDP, Total Exports and Government 
Revenue for Metal-Dependent Countries (2008) 
  Base Metal  Country  %GDP  %Total Exports  % Government Revenue 
Aluminum  Mozambique  11.62  45.64  34.33 
Copper  Zambia  14.01  39.20  62.78 
Lead  Zimbabwe  7.0  12.1  na 
Zinc  Namibia  2.4  6.4  8.4 
Source: AfDB Statistics Department using UN COMTRADE Database. 
 
 
 
 Base Metals Production in Africa and the Global Market Situation                           Page 2 
 
 
 
  
“Africa’s share of 
global production and 
export of base metals 
remains at meagre 
levels. African 
production of major 
metals has ranged from 
about 5% of global 
production for 
aluminium and copper 
to just over 2% for lead 
and zinc.”  
    In  addition,  base  metal  exports 
contribute  very  little  to  the  continent’s 
GDP (e.g. 0.59% in 2008), total exports 
(1.5%),  and  government  revenues 
(1.64%). On a country basis, however, as 
shown  in  Table  3,  base  metal  exports 
constitute a large portion of the exports 
and  government  revenues  of 
Mozambique and Zambia. At least up to 
the  emergence  of  the  financial  crisis, 
Zambia’s real GDP growth exhibited a 
positive correlation with world copper 
prices,  indicating  that  higher  copper 
prices tend to be associated with higher 
economic growth in Zambia and vice 
versa  –  just  as  in  other  African 
countries that are heavily dependent on 
single  commodities  for  foreign 
exchange  earnings  (Figure  1).  It  is 
therefore  imperative  for  monocultural 
economies  to  urgently  diversify  their 
revenue bases to reduce dependence on 
single commodities.  
 
 
 
Figure 1: Zambia's Real GDP Growth and Copper Prices 
4 
5 
6 
7 
2005  2006  2007  2008  2009(e)  2010(p) 
% 
0 
2000 
4000 
6000 
8000 
USD 
Real GDP Growth in Zambia (%)  Copper Prices (US$/Mt) 
 
3.  Base Metal Price Trends  
From  2003  to  early  2008,  the  world 
witnessed  the  most  marked  commodity 
price boom of the past century (see Table 
4, Figures 2 & 3). The price of metals 
(including  base  metals)  and  other 
commodities  rose  sharply,  and  over  a 
sustained period. Like earlier commodity 
booms,  this  one  was  associated  with 
strong  global  growth,  but  was 
exceptional  in  its  duration  and  in  the 
range  of  commodities  affected.  For 
example,  by  mid  2008,  metals  and 
minerals prices were about 300% higher 
in dollar terms than in January 2003.  
 
However, the long boom finally came to 
an end, with prices falling in response to 
the  global  financial  crisis  and  the 
ensuing  slower  growth  in  the  midst  of 
increased  supplies,  and  revised 
expectations.  For  example,  in  2008, 
nickel price  fell  by  41%,  while  that  of 
lead fell 18.4%. By 2009, the prices of 
base  metals  and  minerals  declined 
precipitously  from  their  record  high 
levels of previous years. 
For example, at the end of that year the 
percentage falls ranged from 34.9% for 
aluminium  to  16.8%  for  lead.  Only 
zinc recorded a very marginal increase 
of 0.92%. During 2010, however, there 
has  been  a  dramatic  recovery  in  the 
price  levels  (Table  5).  The  average 
price gains up to mid-June 2010 have 
ranged from 45% for nickel to 22.6% 
for  lead.  The  price  of  zinc  ironically 
fell by 0.7% during this period. These 
aggregate  price  movements,  however, 
mask the volatility in price movements 
(Tables 5, 6). On a quarterly basis, for 
example, the second quarter compared 
with  the  first  quarter  of  2010  had 
witnessed a fall of 10% in lead prices 
and  2%  each  in  the  prices  of  copper 
and  aluminium.  Nickel  gained  14% 
during the period while tin gained only 
3%. The price of zinc was almost flat 
during the second quarter of 2010. 
 
On  a  monthly  basis,  apart  from  zinc 
whose  price  remained  almost  flat,  all 
the  other  base  metals  recorded  price 
falls during the first two weeks of June 
2010  compared  to  the  month  of  May 
2010. 
 
“Zambia’s real GDP 
growth exhibited a 
positive correlation 
with world copper 
prices, indicating that 
higher copper prices 
tend to be associated 
with higher economic 
growth in Zambia and 
vice versa.” 
 
 
 Base Metals Production in Africa and the Global Market Situation                           Page 3 
 
 
 
  
“It is therefore 
imperative for mono-
cultural economies to 
urgently diversify their 
revenue bases to reduce 
dependence on single 
commodities.”    
“The long boom finally 
came to an end, with 
prices falling in 
response to the global 
financial crisis and the 
ensuing slower growth 
in the midst of 
increased supplies, and 
revised expectations.” 
Table 4: Base Metals: Average Price Movements, $/MT 
   Base Metal 
  
Annual Price Movements 
2007  2008  2009  2010 
a 
Aluminum  2,643  2,564  1,670  2,145 
Copper  7,139  6,959  5,178  7,184 
Lead  2,567  2,095  1,742  2,136 
Nickel  36,071  21,220  14,781  21,431 
Tin  14505  18408  13421  17540 
Zinc  39,264  39,631  39,997  40,261 
 
 Base Metal 
  
Quarterly Price Movements 
2009  2010 
Q1  Q2  Q3  Q4  Q1  Q2 
a 
Aluminum  1,359  1,488  1,806  2,000  2,165  2,121 
Copper  3,460  4,694  5,848  6,650  7,245  7,107 
Lead  1,173  1,520  1,942  2,313  2,235  2,011 
Nickel  10,625  13,147  17,576  17,593  20,163  23,029 
Tin  10938  13430  14189  15075  17,276  17,874 
Zinc  39,859  39,950  40,040  40,132  40,225  40,308 
 
Base Metal 
 
Monthly Price Movements 
2010 
January  February  March  April  May 
Jun
e 
Aluminum  2,235  2,049  2,205  2,316  2,040 
1,92
3 
Copper  7,367  6,868  7,467  7,730  6,843 
6,43
1 
Lead  2,377  2,146  2,190  2,299  1,907 
1,67
0 
Nickel  18,478  19,136  22,521  26,086  22,001 
19,2
48 
Tin  17.777  16.416  17.587  18.707  17.632 
16.7
78 
Zinc  40,195  40,223  40,253  40,285  40,314 
40,3
37 
Note: a: Up to Mid-June 2010 
Source: AfDB Statistics Department and Bloomberg (LME) 
     
http://www.bloomberg.com/markets/commodities/futures/ 
 
 
 
 
Figure 2: Monthly Base Metals Prices (US$/MT)  
0 
500 
1000 
1500 
2000 
2500 
3000 
3500 
4000 
4500 
5000 
Jan- 
05 
Jun- 
05 
Nov- 
05 
Apr- 
06 
Sep- 
06 
Feb- 
07 
Jul- 
07 
Dec- 
07 
May- 
08 
Oct- 
08 
Mar- 
09 
Aug- 
09 
Jan- 
10 
Jun- 
10 
Month/Year 
US$ 
0 
10000 
20000 
30000 
40000 
50000 
60000 
Aluminum Prices (US$/Mt)(Right Axis)  Lead Prices (US$/Mt)(Right Axis) 
Zinc Prices (US$/Mt)(Right Axis)  Copper Prices (US$/Mt)(Left Axis) 
Nickel Prices (US$/Mt)(Left Axis)  Tin Prices (US$/Mt)(Left Axis) 
 
 
 Base Metals Production in Africa and the Global Market Situation                      Page 4 
 
 
 
  
“During 2010, 
however, there has 
been a dramatic 
recovery in the price 
levels.”  
   
 
Figure 3: Monthly Commodity Price Index (2005=100)
0
50
100
150
200
250
300
350
400
450
J
a
n
-
0
5
A
p
r
-
0
5
J
u
l
-
0
5
O
c
t
-
0
5
J
a
n
-
0
6
A
p
r
-
0
6
J
u
l
-
0
6
O
c
t
-
0
6
J
a
n
-
0
7
A
p
r
-
0
7
J
u
l
-
0
7
O
c
t
-
0
7
J
a
n
-
0
8
A
p
r
-
0
8
J
u
l
-
0
8
O
c
t
-
0
8
J
a
n
-
0
9
A
p
r
-
0
9
J
u
l
-
0
9
O
c
t
-
0
9
J
a
n
-
1
0
A
p
r
-
1
0
Month/Year
I
n
d
e
x
Energy Agriculture
Metals and minerals Base Metals
Table 5: Price Performance Snapshot of Base Metals at LME as at 15 June 2010 
(US$/MT) 
 
Base Metal  Value  Daily % 
change 
Weekly % 
change 
Monthly % 
change 
Quarter % 
change 
Aluminum  1967.25  0.13  ▲  2.96  ▲  -2.15  ▼  -11.10  ▼ 
Copper  6653.5  0.28  ▲  8.46  ▲  -3.49  ▼  -8.50  ▼ 
Lead  1759  2.57  ▲  9.53  ▲  -9.33  ▼  -20.19  ▼ 
Nickel  20225  -0.37  ▼  9.50  ▲  -6.17  ▼  -5.93  ▼ 
Tin  17500  3.24  ▲  9.72  ▲  -0.28  ▼  0.29  ▲ 
Zinc  1840  2.39  ▲  6.11  ▲  -10.46  ▼  -19.30  ▼ 
 
Table 6: Base Metal Prices at 15 June 2010 (US$/MT) 
 
Base Metal  Spot (Cash 
Settle)  LME Three Months Forward 
Aluminum  1965  2013 
Copper  6625  6680 
Lead  1685  1759 
Nickel  20105  20250 
Tin  17080  17505 
Zinc  1772.5  1840 
Source: FICC Research Commodities: Daily, 16 June 2010 
     http://www.rmb.co.za/africaFocusFICC.asp 
 
 
 
 Base Metals Production in Africa and the Global Market Situation                           Page 5 
 
 
 
  
 
 
“These aggregate price 
movements, however, 
mask the volatility in 
price movements.” 
““Dollar-denominated 
commodities like base 
metals tend to move 
inversely to the value of 
the U.S. currency.”  
   
   
4. Price Drivers and Outlook 
A number of critical factors are behind the 
volatility  observed  in  the  prices  of  base 
metals.  These  include  sentiment  regarding 
the  recovery  in  the  underlying  global 
economy  (particularly  the  U.S.  and  China, 
which  are  major  base  metal  consumers  in 
addition  to  Brazil  and  India),  market 
sentiment  generally  -  expressed  in  equity 
markets,  expectations  of  a  tighter  or loose 
physical  market  going  forward  As  well  as 
the  value  of  the  dollar  against  major 
currencies.  
Dollar-denominated  commodities  like  base 
metals tend to move inversely to the value of 
the U.S. currency.  For example, the recent 
rise  of  the  dollar  against  a  six-currency 
basket,  especially  the  euro  and  yen  partly 
accounted  for  the  downward  trend  in  the 
prices of the base metals. The recent decline 
in  the  price  of  copper,  especially  after 
significant declines in U.S. housing starts in 
more  than  a  year,  signals  that  demand  for 
industrial metals is easing. Copper is seen by 
some  investors  as  a  gauge  of  economic 
activity  as  it  is  used  in  construction  and 
transport.  
Another  factor  relates  to  the  concern  that 
Europe’s debt crisis, which began in Greece, 
will  derail  the  global  economic  recovery. 
The  recently  announced  belt-tightening 
measures  in  Britain,  Spain,  and  Italy  give 
added  momentum  to  such  fears.  Zinc’s 
fundamentals  are  not  so  good  since  the 
summer  slowdown  will  add  to  downward 
pressure  on  prices.  More  importantly, 
stockpiles  in  zinc  exchange-monitored 
warehouses are near the highest level since 
April 2007, when the contract started.  
The same rising inventory situation applies 
to lead. Lead stocks registered with the LME 
ended  mid-June  2010  at  191,700  tons,  up 
45,925 tons or 31.3 percent on the start of 
the year, and about the second highest level 
recorded  since  late  2002.  Also,  nickel  pig 
iron  makers  in  China,  the  world’s  largest 
consumer  of  nickel,  have  started  to  idle 
capacity as prices and demand weaken in the 
midst of the country’s curbs on real estate 
development. 
However, this build up in surplus base 
metal  appears  to  be ending  given  the 
surge in cancelled tonnage, indicating 
falling  demand  (Table  7).  The  same 
applies  to  other  base  metals.  For 
example, inventories of copper tracked 
by the LME slipped to 459,150 tons by 
mid-June 2010, the lowest level since 
10 December 2009. At the same time, 
cancellations  for  copper  jumped  to 
28,825  tons  during  the  same  period, 
one of the highest since 28 April 2010. 
 
 As  at  mid-June  2010,  cancellation 
warrants for lead rose by 10% and 7% 
for aluminium and tin, respectively. All 
these point to the expectation that base 
metals will generally trade sideways in 
the month ahead. However, as Europe 
and  indeed  the  global  economy 
recover,  we  shall  begin  to  witness  a 
sustained  bullish  base  metal  market 
with expected strong industrial demand 
particularly  from  the  emerging 
economies  that  are  building  their 
infrastructure. In the medium-term, we 
expect  expanded  assembly  of  motor 
vehicles  worldwide  to  help  boost 
demand,  reduce  stockpiles,  tighten 
supply  and  raise  the  price  for  lead 
(used to make auto-ignition batteries), 
nickel (used to make stainless steel for 
exhaust  systems  and  fuel  tanks),  and 
zinc (used to galvanize sheet steel).  
 
We  also  expect  prices  to  continue  to 
rise in 2011 due to a lack of investment 
in  new  mines.  Fifteen-month  futures 
per  MT  stand  at  US$2,050  for 
aluminium,  US$6,590  for  copper, 
US$1,738  for  lead,  US$19,375  for 
nickel,  US$17,535  for  tin,  and 
US$1,835  for  zinc.  It  has  been 
estimated by the Virtual Metals Group, 
for example, that the average prices of 
these base metals in 2011 would be as 
follows,  per  MT:  aluminium 
(US$2,652),  copper  (US$7,908),  lead 
(US$2,463),  nickel  (US$24,792),  tin 
(US$19,521), and zinc (US$2,825).   
 
 
 Base Metals Production in Africa and the Global Market Situation                           Page 6 
 
 
 
  
“In the medium-term, 
we expect expanded 
assembly of motor 
vehicles worldwide to 
help boost demand, 
reduce stockpiles, 
tighten supply and 
raise the price for lead 
nickel and zinc.” 
“As Europe and indeed 
the global economy 
recover, we shall begin 
to witness a sustained 
bullish base metal 
market with expected 
strong industrial 
demand particularly 
from the emerging 
economies that are 
building their 
infrastructure.”  
 
Table 7: Base Metal Stock Movements (MT) as at 15 June 2010 
 
Base Metal  Value  Daily % 
change 
Weekly % 
change 
Monthly % 
change 
Quarter % 
change 
Aluminum  1967.25  0.13  ▲  2.96  ▲  -2.15  ▼  -11.10  ▼ 
Copper  6653.5  0.28  ▲  8.46  ▲  -3.49  ▼  -8.50  ▼ 
Lead  1759  2.57  ▲  9.53  ▲  -9.33  ▼  -20.19  ▼ 
Nickel  20225  -0.37  ▼  9.50  ▲  -6.17  ▼  -5.93  ▼ 
Tin  17500  3.24  ▲  9.72  ▲  -0.28  ▼  0.29  ▲ 
Zinc  1840  2.39  ▲  6.11  ▲  -10.46  ▼  -19.30  ▼ 
Source: FICC Research Commodities: Daily, 16 June 2010 
    http://www.rmb.co.za/africaFocusFICC.asp 
 
  5. Conclusion 
 
In  Africa’s  base  metal-dependent 
economies, the current price volatility of 
these commodities can result in growth 
instability. Growth volatility, in turn, can 
result  in  these  countries’  inability  to 
achieve higher levels of living standards. 
Base metals’ endowment is a source of 
wealth  and  can  be  expected,  if  well 
managed,  to  support  growth  and 
development. 
This  involves  converting  the  wealth 
into  physical  and  human  capital  to 
increase and sustain economic growth, 
and  alleviate  poverty.  The  successful 
pathway  to  fully  harnessing  the 
benefits  of  having  these  resources  in 
Africa  is  nested  in  good  institutions 
and  governance,  and  sound  economic 
policies.  These  are  indispensable 
conditions  not  only  for  efficient 
management  of  revenue  but  also  for 
these countries to diversify away from 
base metals dependence. 
 
 
 Base Metals Production in Africa and the Global Market Situation                           Page 7 
 
 
 
  
“The successful 
pathway to fully 
harnessing the benefits 
of having these 
resources in Africa is 
nested in good 
institutions and 
governance, and sound 
economic policies.” 
“These are 
indispensable 
conditions not only for 
efficient management 
of revenue but also for 
these countries to 
diversify away from 
base metals 
dependence.” 

Commodity Market Brief-Base Metal Production in Africa and the Global Market Situation

http://www.afdb.org/fileadmin/uploads/afdb/Documents/Publications/Base%20Metals%20Brief%20July%202010%20rev%2022Jul10.pdf

Commodity Market Brief-Base Metal Production in Africa and the Global Market Situation

Abstract

Similar works

Full text

Available Versions

Research Papers in Economics