METALS COMMENTARY — Demand for metals strengthens

During the first half of March, metal markets shrugged off the downturn in prices that afflicted them in February.

Physical demand for all metals was even stronger as processors took advantage of the price setbacks in order to reload inventories. Reflecting tight physical markets, the producer premiums on virgin metals, which at first followed prices down, began to retrace their steps upwards. Scrap prices also retreated, as merchants resisted taking losses on higher-cost accumulations.

Exchange inventories continued their decline as processors (or their agents) were compelled to take the only material available for their bulging order books.

For the moment, the physical market, except for hedging, appears to have distanced itself from the unease caused by fluctuating currencies. Buyers in countries with strong currencies are experiencing ever-cheaper prices for raw materials and are expected to restock. When they add their domestic processing costs and face the market with higher prices in the next few months, buyers will decide whether to necessitate a slowdown. Meanwhile, it is business as usual.

The following average prices and inventories of the London Metal Exchange (LME) pertain to the first half of March, with the previous month’s figures shown in parentheses (unless stated otherwise). Strong demand steadied nickel at US$3.44 (US$3.86) per lb., as inventories fell on March 15 to 127,362 tonnes (compared with 132,558 tonnes at the end of February). Continued U.S. government sales and firm demand supported cobalt, as free-market quotes for Western A grade eased to US$28.50 (US$29.50) per lb. News that production fell in Japan during January pushed lead up slightly to US26.8 cents (US26.3 cents) per lb.; stocks fell to 304,150 (312,350) tonnes. As with lead, zinc traded quietly, falling slightly to US46.4 cents (US46.8 cents) per lb., while stocks remained little-changed at 1.1 million tonnes. Copper retraced all the losses it experienced in February. The combination of inventories on the LME and the Commodity Exchange of New York fell again, to 271,663 (297,500) tonnes, as the price of the red metal rose to US$1.32 (US$1.30) per lb.

The general malaise affecting metals, combined with repeated reports that U.S. producers were planning to resurrect shuttered capacity, had the effect of pushing down molybdenum oxide spot price quotes to US$12 per lb. in mid-March (compared with US$15 at the end of February).

As a result of currency-related unease, precious metals were all firmer. Rumors of circuitous central bank sales and renewed interest among investors pushed gold to US$380.44 (US$376.75) per oz. On little news, spot silver prices fell to US$4.57 (US$4.72) per oz.

In similarly firm, yet quiet, markets, platinum group metals remained steady. Platinum stood at US$414 (US$414.19) per oz. and palladium eased slightly to US$155.58 (US$157.05) per oz. Still under supply pressure, rhodium was unchanged at US$500 per oz.

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