METALS COMMENTARY — Demand for metals still reasonably healthy

Metals investors continue to cope with the rapid-fire changes affecting their markets. While a noticeable slackening in U.S. demand has cooled orders for housing and autos, U.S. manufacturers seem unfazed as overall demand remains reasonably healthy.

The economic awakening in Europe shows no sign of slowing down, as demand for metals on the Continent seems to be absorbing surpluses elsewhere. In many metal markets, European demand accounts for more than 40% of world consumption.

In Japan, massive currency adjustments and recessionary fears have yet to cause any marked changes in metal demand or output. The aftershocks of the Kobe earthquake continue to delay shipments in and out of that port area, and some Asian consumers have been forced into other markets to satisfy their metal needs.

After several years of turmoil and the collapse of many state-subsidized companies, the surviving suppliers of metals in Russia seem to have switched from largely internal to more export-oriented markets. Delivery levels from those suppliers who made the market transition are steadying, and buyers appear to be more confident in their ability to complete long-term contracts.

The following average prices of the London Metal Exchange (LME) pertain to the month of April, with the previous month’s averages shown in parentheses (unless stated otherwise).

News of higher year-over-year Russian shipments during the first quarter, combined with falling stocks and good demand, eased nickel to US$3.36 (US$3.42) per lb. as inventories fell again to 114,390 tonnes (compared with 122,436 tonnes at the end of March). At this rate of decline, stocks could break below 100,000 tonnes by June.

Slightly improved demand from consumers edged cobalt free-market quotes for Western A Grade to US$27.50 (US$27) per lb.

Several factors — mild winter weather, falling secondary feed supplies, shortages in smelter and refinery feed, and rising demand from Europe — conspired to nudge lead up to US27.6 cents (US26.6 cents) per lb. as stocks fell again, to 280,350 (293,050) tonnes.

Good demand, and now rapidly falling inventories, elevated zinc to US48.2 cents (US46.4 cents) per lb. as stocks again declined, to 966,700 million (1.019 million) tonnes.

The slowing U.S. economy did not seriously affect copper markets during April, as the combination of inventories on the LME and the Commodity Exchange of New York fell again, to 215,695 (248,108) tonnes. LME copper prices eased slightly to US$1.32 (US$1.33) per lb. and world inventories of the red metal are approaching levels where, unless more feed gets to refiners soon, higher prices are likely.

News of U.S. producers’ startup plans depressed molybdenum markets as oxide spot prices at the end of April sagged to US$7-8 per lb. (compared with US$12 at the end of February). Some weakening in producer quotes is also reported.

Still bubbling from re-alignments in the U.S. dollar-yen exchange rate, precious metals began to settle back near the end of April, but impressive gains made over March remain.

Only slightly perturbed by the recent financial turmoil, average April gold prices moved up to US$391.37 (US$381.82) per oz. Assisted by repeated news of production levels below consumption and heavy fund purchases, silver soared to US$5.51 (US$4.65) per oz.

Indicating that the yen appreciation is over, platinum group metal markets began to ease back. Significant price improvements remain, however; average April platinum prices jumped

to US$449.05 (US$416.50) per oz. and palladium reached US$170.20 (US$162.59) per oz. Yen-based buying also caused rhodium to move sharply ahead to US$470 (US$440) per oz.

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