China seen as key to base metal demand outlook

NEW YORK (Reuters) - China's economic stimulus plan should give a needed boost to faltering industrial metals markets but the world's fastest growing economy cannot revive demand by itself, chief executives said this week.

No matter how big China's stimulative efforts, U.S. and European economic recovery is needed to boost metal demand, metal industry CEOs said at the Reuters Global Mining and Steel Summit.

"China cannot lead us out" of the global economic slowdown by itself, said Alcoa's (AA.N) CEO Klaus Kleinfeld. He noted that China has already done its part to cut production, which has helped stabilize prices.

"China currently does the maximum that they can do," he said. But in order to get demand back on track, "There is nothing that can replace the leadership role of the U.S."

Swift, severe cuts among many steel and base metals producers went a long way toward aligning supply with demand.

The U.S. aluminum giant's chief credited China with leading the way by cutting 20 percent of its own aluminum smelting output, shifting the country to an importer of the metal.

Others pointed out that faltering industrial production in the United States and Europe would take much longer to recover, and China, with its planned economy, can implement infrastructure and other industrial projects more quickly.

"China is by far doing better in signs of recovery. I don't think in the U.S. or Europe we're seeing anything that would suggest we're close to any kind of recovery situation," said Michael Sutherlin, President and CEO of U.S. mining equipment manufacturer Joy Global Inc JOYG.O.

Richard Adkerson, CEO of the world's second largest copper miner, Freeport McMoRan (FCX.N) pointed to the railroads, power systems, and other development projects China continues to build as a driving force behind global copper consumption.

"Clearly in China the things they are doing have a current demand impact and are going to have a demand impact," he said.

The copper executive pointed out that three-quarters of China's stimulus package will go to construction projects.

On Friday, Chinese Premier Wen Jiabao said this year's budget for stimulus projects would add up to $87 billion.

But they said the U.S. plan's impact will be felt later.

"It's not so much a near-term demand impact. There will be some from the projects they are doing, but the overall goal (of the U.S. plan) is to get people working again," he said.

He added that in the current depressed environment, "any incremental increase to (metal) demand is helpful."

Los Angeles based, Reliance Steel & Aluminum (RS.N), a processor and distributor of steel and aluminum products who, as an intermediary, sees into both producers' and consumers' businesses, views the biggest problem for the base metals industry as weakness among metal users.

Between frozen credit markets strapping businesses, depressed metal prices keeping buyers waiting for the bottom, and dried up retail spending, demand for all types of metals has fallen off sharply since November.

Until demand picks up again, metal prices should continue to languish in the sideways trend developing since 2009 began.

With many producers operating below cash costs, Reliance CEO David Hannah said he thinks steel and aluminum prices are currently at or near their bottom. Nor does he see a price rise, questioning where a demand increase would come from.

While Adkerson said he never predicts copper prices, he added that he did not feel confident that the push in March above its 2009 range high meant the worst was over.

Aside from strength in China, he said depressed conditions in both the U.S. and Europe had the potential to push prices lower and warned that the danger was on the demand side.

But Freeport, Reliance, and others also noted that many companies have worked off inventories, which could set up for a rapid price increase when demand finally takes off.

"It really is an unusual thing that the system doesn't have the huge amounts of inventory to work down. So even in a weak market there's going to be buying of product," Adkerson said.

(Reporting by Carole Vaporean; Editing by David Gregorio)