Metals sub-index off sharply in April

A sharp drop in copper and potash prices in April led to a new cyclical low for the metal and mineral sub-index of the Bank of Nova Scotia’s commodity price index.

Base metal prices continue to be plagued by weak European and Japanese demand, waning Chinese purchases and the beginning of the normal summer slowdown.

Economist Patricia Mohr reports that base metals have lost further ground in May, with London Metal Exchange (LME) copper prices dipping to US81 cents per lb. from US89 cents in April. LME zinc prices have also fallen, to US43 cents per lb. which is well below the cash costs of half the industry. Zinc inventories have climbed to 659,750 tonnes on the LME, a 6-fold increase from peak levels in the 1980s. And it is anticipated that inventories will move even higher over the summer months. Even though from the West output will be reduced by about 10% this year, large cuts in smelter production are also needed to boost prices, Mohr says.

U.S. and Canadian demand for galvanized steel has increased during the first half of this year along with a 15% increase in North American motor vehicle output. However, coated steel orders have dropped sharply in Europe in response to weak car sales in all major markets except Britain. The metal and mineral sub-index was down 4.8% in April from March and off by 14.1% from one year ago. The all-items index declined by 9.5% in April to a level 5.4% above that of a year ago.

The all-commodity index tracks export prices of a variety of Canadian commodities which are weighted according to their 1984 export values; an exception is crude oil, for which the value of net exports is used.