Metals Commentary — Metals buyers, sellers face off

After the metals price turmoil in the first quarter, metals buyers and sellers are maintaining a cool facade as both sides attempt to determine whether there is any weakness in their respective markets.

Rising interest rates and some slowing in big-ticket consumer items have yet to impede demand seriously, although producer premiums over exchange quotes are off slightly.

Miners still have ready markets for their output, and smelters and refineries are generally short of feed. Current demand for virgin metals exceeds production, and drawdowns of stocks continue at good rates.

If the yen/U.S. dollar exchange rate stays in its current range, dollar-based trade in Japan will be under upward price pressure, as competitors with similar products will have the opportunity to increase market share or raise prices by substantial percentages.

If the former scenario is played out, Japan will awake to a recession. The country is the source for 25-50% of some of the world’s alloys (about 30% for stainless steel). With most of the world’s heavy industrial plant operating near capacity, price pressures for basic commodities (particularly in U.S. dollars) seem imminent.

Meanwhile, base metals markets continue to improve, as prices stabilize and stocks decline steadily. The following average prices and inventories of the London Metal Exchange (LME) pertain to April to date, with the previous month’s averages shown in parentheses (unless otherwise stated).

Amid firm demand, nickel slowly steadied at US$3.41 (US$3.40) per lb. as inventories fell again on April 18, to 117,810 tonnes (compared with 122,436 tonnes at the end of March).

Reports of increasing tightness were not enough to move cobalt free-market quotes for Western A grade as prices remained immobile at US$27 per lb.

News of falling smelter and refinery feed, combined with steady demand, kept lead virtually unchanged at US27.4 cents (US26.6 cents) per lb. as stocks fell again to 291,025 (293,050) tonnes.

Three factors — high world demand, continued labor disruptions at MIM in Australia and a planned withdrawal by Pasminco (another Aussie producer) from the U.S. west-coast market — combined to nudge zinc to US47.8 cents (US46.4 cents) per lb. as stocks again declined to 989,525 million (1.019 million) tonnes.

The combination of inventories on the LME and the Commodity Exchange of New York fell again, to 218,980 (248,108) tonnes, as LME copper rose to US$1.342 (US$1.326) per lb. The somewhat complicated picture of rising demand, falling grades and normal mine closures has rendered analysts unable to agree as to when the rising Chilean production will have the effect of easing the world’s shortage of concentrate and metal.

U.S. producer startup announcements, combined with brisk sales, steadied molybdenum oxide spot quotes at US$10-12 per lb. (compared with US$12 at the end of February). Producers are maintaining their April quotes at US$12.

High industrial demand has also affected the chrome market. Prices for ferrochrome, a major component of stainless and other alloys, more than doubled in the past few weeks, rising to US75-95 cents per lb. from 35 cents per lb. of contained chrome. The only significant unused producer capacity exists in southern African countries.

As a result of the appreciation of the yen, all precious metals gained in recent weeks, with gold strengthening to US$391.69 (US$381.82) per oz. and silver jumping to US$5.35 (US$4.65) per oz.

The improved yen also

enhanced already-firm plati-

num group metal markets. Platinum bounced to US$450.83 (US$416.50) per oz., while palladium reached US$173.69 (US$162.59) per oz. Ignoring supply pressures, rhodium also rose, to US$470 (US$440) per oz.

— Jack Dupuis is a metals agent, broker and consultant specializing in the marketing of metals.