METALS COMMENTARY — Metals markets relax in summer

The annual summer doldrums are having a mixed effect on metals markets, with producers waiting out the holiday shutdown period and metal prices varying from strong to weak.

Some speculators, who deserted early in 1995 amidst dire predictions of falling economies and currency crises, are again taking positions. Almost all world markets are showing unexpected strength and resilience, even in the face of some potentially devastating news. Daily news of floods, civil wars, currency upheavals, recession forecasts and plant upsets are evaluated and treated as commonplace events. Information and supply alternatives are taking the panic out of many of these events.

In the U.S., it has been proposed that strategic stockpiles be reduced to zero for virtually all the metals in inventory. While this would naturally have an affect on markets, such sales have, in the past, served to minimize any market disruptions and, in fact, have been the main factor in stabilizing some metals in short supply.

The main price driver in metals remains the world scrap market. Most of the recent capacity expansions have been based on the increased use of scrap feeds. This was particularly noticable in the steel and stainless sectors, and the resulting competition for scrap units has been dragging up and holding up the values for virgin metal units. This year, mill interest in large scrap tonnages has increased, even during the slower summer season. (A large Korean steel company has announced its new plant will resort to blast furnace and iron ore feed technology, perhaps signalling a renewed interest in iron mining.)

The following prices and inventories of the London Metal Exchange (LME) are for July to date, with the previous month’s figures shown in parentheses (unless stated otherwise).

* Continued strong demand and falling stocks pushed nickel to US$3.86 (US$3.57) per lb. as inventories fell to 86,220 tonnes (88,464 tonnes at the end of June).

* A small surge in availability, slower summer demand and the potential for higher U.S. stockpile releases kept cobalt free-market quotes for Western A Grade at US$27.25 per lb.

* Quiet markets and labor disruptions held lead prices steady at US28 cents (US27.8 cents) per lb. as stocks fell again to 241,825 (243,850) tonnes.

* Labor disputes, some increase in third-quarter production and good seasonal demand supported zinc at US47.1 cents (US46.9 cents) per lb., as stocks dropped to 826,050 (831,975) tonnes.

* Despite announcements of new mine output, the combination of copper inventories on the LME and Commodity Exchange of New York fell to 160,155 (178,360) tonnes, as the price of the red metal strengthened to US$1.40 (US$1.36) per lb.

* The price of spot molybdenum oxide has slowly given way as new production enters the market. The producer price is now around US$7 per lb. (unchanged since the end of June).

* Meanwhile, precious metals remain quiet and slightly softer, with gold sitting at US$384.77 (US$387.65) per oz. The distinctive ceiling being imposed on the price of the yellow metal is certainly different from its historical, free-wheeling ups and downs.

* On little news, silver averaged US$5.10 (US$5.37) per oz.

* Turning to platinum group metals, platinum was little changed at US$433.92 (US$438.37) per oz., as was palladium, at US$157.39 (US$158.68) per oz. Rhodium is still ahead at US$535 per oz. (unchanged since June).

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