METALS COMMENTARY — World markets affected by consolidation

Oscillating prices, currency upheavals and speculative gains and losses continue to characterize global metal markets.

The bull market in metals, which began late in 1993, entered a period of consolidation and retrenchment in the first quarter of 1995, and this seems likely to persist into the next 3-month period. Also lying ahead is the traditionally slower vacation period (although high demand compensated for the slowness last summer).

One difference between this and previous booms is in the names of the players. Consolidations and mergers have reduced the number of companies supplying and consuming most of the world’s metals, and have, moreover, provided them with international connections.

In addition, significant amounts of the Western World’s savings have been reorganized into the hands of aggressive and

influencial fund managers and investment bankers. These funds are being invested across national boundaries and are even serving as regulators of national policy insofar as their use helps

determine economic decisions.

This new dimension to international trade, combined with the transnational nature of many commodity companies and freer trade, renders many local political decisions open to intense economic scrutiny. Currency decisions, taxes or tariff barriers can easily result in industries becoming outdated and uncompetitive.

The mining, steel and scrap industries have long been

international traders, and past government-sponsored efforts to “manage” some of these industries have inevitably led to higher costs to consumers and trade distortions. In metals,

state-sponsored cartels have recently been extended to uranium, tin and aluminum, a development which has resulted in higher prices and additional production in already oversupplied markets.

In April, U.S. stainless producers, citing the lack of market discipline, proposed that governments work toward a multilateral stainless steel agreement (this on top of the highest profits this industry has seen in years).

Markets for non-ferrous, pure metals have experienced good

fundamentals and falling inventories and prices. Scrap prices have been generally steadier, resisting sharp movements.

The following average prices and inventories of the London Metal Exchange (LME) pertain to the first two weeks of May (unless otherwise stated), with the previous month’s figures shown in parentheses.

Beset by choppy prices, nickel eased to US$3.17 lb. (US$3.36) as inventories fell again, to 110,178 tonnes (compared with 114,390 tonnes at the end of April). As a result of regular monthly

winter shipments, the usual “summersurge” of Russian nickel

arrivals may not materialize this year.

In the delicately balanced cobalt market, slightly improved

consumer buying pushed free-market quotes for Western A Grade to US$28.50 per lb. in mid-May (compared with US$27.80 per lb. on May 1).

In quieter markets, lead eased to US26.8 cents (US27.6 cents) per lb. as stocks fell again, to 265,975 (280,350) tonnes, or about 2 weeks’ worth of consumption.

Ease of U.S. sales in the auto and building sectors, combined with firm demand elsewhere, kept zinc steady at US47.3 cents (US48.2 cents) per lb. as stocks again declined, to 931,325

(966,700) tonnes.

Meanwhile, copper has been affected by quieter U.S. demand and higher refinery receipts from new mine production. The

combination of inventories on the LME and the Commodity Exchange of New York rose slightly to 219,901 (215,695) tonnes as LME prices dropped to US$1.25 (US$1.32) per lb.

Increases in output by U.S. producers account for steady

molybdenum spot prices, with the figure in mid-May hovering

around US$7-8 per lb. (unchanged since the end of April).

Prices for precious metals have generally eased following their recent gains.

Maintaining its long, sidewise slide, gold gyrated to US$387.31 per oz. in April (compared with US$391.37 in the previous month).

Turning in a more volatile performance, silver soared to US$6 per oz. and promptly dropped to US$5.40, leaving the average for May to date at US$5.70 (US$5.51) per oz.

Turning to platinum group metals, markets have been retreating following the recent yen-based runup. Platinum fell to US$443.90 (US$449.05) per oz. and palladium followed suit, hitting

US$161.73 (US$170.20) per oz. Rhodium, on the other hand, managed to hold onto its gains, climbing to US$565 (US$470) per oz.

Interest has recently been generated by the prospect of adding a catalytic coating to car radiators and air-conditioners, for treatment of smog. This is estimated to cost between US$400 and US$500 per vehicle and would probably require legislation.

— Jack Dupuis is a metals agent, broker and consultant

specializing in the marketing of metals.