* Europe is world's 2nd biggest consumer of base metals
* Pent-up demand expected after euro zone exits recession
* Buying from Europe could tip market balance in some metals
By Eric Onstad
LONDON, Sept 18 Increased demand in Europe as it
recovers from recession could tip the market balance for some
industrial metals, creating small but price-boosting deficits
after years of surplus.
Europe's rebound, while expected to be gradual, may surprise
investors used to ignoring the continent in favour of China, the
world's biggest consumer of raw materials.
"Market thinking has become conditioned to take Europe as a
negative for market demand," said Duncan Hobbs, senior
commodities analyst at Macquarie in London.
"In a couple of markets, lead and tin, which look finely
balanced at the global level today, European recovery could be
the difference that tips these markets into deficit overall."
While not swinging the copper market into deficit, European
recovery should help reduce the surplus in the red metal, Hobbs
Europe is still the world's No. 2 buyer of industrial metals
but its debt crisis and recession have hammered demand for them,
with double-digit declines from pre-crisis levels.
Copper and steel have posted falls of about a fifth while
the steepest decline came in tin, where demand sank by almost 25
percent from 2008 to 2012, Hobbs said.
But the euro zone emerged from a 1-1/2-year recession in the
second quarter, with growth of 0.3 percent, and German analyst
and investor sentiment jumped more than expected in September.
"Overall, Europe seems to have reached an important
inflection point. The recovery in the euro zone should be
sustainable, despite an unimpressive pace and the risk of fresh
setbacks," UBS economist Reinhard Cluse said in a note.
UBS this week raised its euro zone growth forecast for next
year to 1.1 percent from 0.8 percent and expects the area's
industrial output - correlated with base metals performance - to
rise 1.9 percent next year after falling 1.0 percent in 2013.
Demand for metals may undergo a burst of activity as
consumers and businesses become more confident about the future.
"You'll go through a period of pain where you don't replace
anything, but over time these assets depreciate so you'll need
to replace them," said Nic Brown, head of commodities research
at Natixis in London.
"If you're a household, you've got things like a house, car,
white goods, and similarly on the corporate side, I think there
will be pent-up demand to replace plants, machinery and vehicles
that have gradually aged."
Europe accounts for about 15 percent of global consumption
of most industrial metals, with nickel higher at 20 percent and
carbon steel lower at 12 percent.
Those numbers are based on the metal content of goods made
in Europe, but actual demand would be higher after accounting
for imports of products containing metals.
Macquarie expects the lead market to be balanced next year,
but a rise in European demand by 1 percent for the metal mainly
used in batteries would mean 15,000 tonnes more consumption,
potentially sending the market into deficit.
For lead and tin, the average tonnage lost to declining
market demand in Europe over the last four years is more than
any surplus expected in the global market next year, Hobbs said.
Copper lost an average of 202,000 tonnes a year of European
consumption in 2008-2012, but if conditions return to normal the
stronger demand could make a major dent in the projected global
surplus of 594,000 tonnes next year, Hobbs said.
(Additional reporting by Veronica Brown; Editing by Dale