Shambles of former Soviet state root cause of misery in

The turmoil in world metal markets is forcing mine operators and refiners to gradually reduce output substantially. Such cutbacks are necessary if the balance among production, consumption and high inventories is to be restored.

In the current metals recession, which began in 1989, aluminum, along with most other non-ferrous metals (and lately copper), has entered a period of severe oversupply. Meanwhile, consumption, encouraged by declining prices, has held close to previous averages.

The onslaught of “new” supply arose from the shambles of the former Soviet Union where enormous amounts of metals were no longer required by the military industry. For example, of the 300,000 tonnes of nickel produced annually in the U.S.S.R., about 50,000 tonnes were officially exported to Western markets and the remainder went to consumers and military plants. With the Russian economy seriously upset, some of the nickel allocated to consumers and the military became surplus and was therefore added to official exports.

Also, since it was not needed, much of the Russian domestic allocation was unofficially exported, earning twice its value, despite some token efforts to keep it at home. The result was a surge of exports to the 130,000-tonne level in 1991 and 1992.

During this time, Russian metal plants became increasingly difficult to keep up, as revenues were insufficient to maintain capital equipment, pay workers and remit the central state taxes. Total nickel production declined to an estimated 180-200,000 tonnes in 1993.

As domestic consumption also eased during this period, exported tonnages remained high until 1993 when they began to drop off. Some of the missing material is now thought to have been bartered to China, and it would appear industry and the military are slowly restarting some manufacturing plant capacity.

Exports from some of these re-activated plants are beginning to flood Western markets at low prices, causing another round of trade tensions and tarriff reactions. Among many recent examples are steel-making alloys related to ferro-chrome, ferro-vanadium and ferro-titanium.

With already-high unemployment, as well as testiness among voters, Western governments are being forced to react to this overt dumping. Perhaps as a precursor to settling these and other metal problems, Russia has approached those countries most concerned about high aluminum exports and European Community quotas and invited their representatives to Moscow for discussions. Canada is among them.

The announcement that Inco will cut 27,000 tonnes from production in the first half of 1994, together with news of tight scrap supplies, pushed London Metal Exchange (LME) nickel prices to US$2.01 (US$1.975) per lb. in October. (All parenthetical figures refer to the previous month.) While LME inventories again jumped to 118,104 (115,668) tonnes, the rate of increase appears to be slowing.

In quiet but firm trading, cobalt prices in October were steady, with Western brands at US$13 (US$12) per lb. and Russian products at US$12 (US$11). Noranda’s announcement that its Brunswick lead smelter will temporarily close, because of a concentrate shortage, lent some support to lead. LME prices were in a narrow range at US17 cents per lb. (virtually unchanged from September) as stocks rose to 288,125 (278,000) tonnes.

LME zinc stocks increased again, reaching 823,000 (797,650) tonnes as prices rose slightly to US41 cents (US40 cents) per lb. The rise occurred in anticipation of the shortage of concentrates and the impact therefrom. Reflecting softer European demand, tight scrap supplies and intervention by the governing board, LME copper prices dropped to US75 cents (US84 cents) per lb. The combination of LME and Commodity Exchange of New York inventories rose again, to 693,607 (675,284) tonnes.

With producers maintaining a tight rein on supply and aiming for higher fourth-quarter quotes, molybdenum oxide trading was busy, at US$2.55 (US$2.45) per lb.