Analyst offers 3 reasons for nickel, copper prices

The current price of copper, in the $1.40(US) per lb range, is the highest it has been since early in 1980, while nickel, which in December breached the $3-per-lb level, is now riding in the $4.10-$4.30 range.

First Marathon Securities of Toronto lists three factors for the surge in prices, not the least of which is low inventories of the base metals.

“As we have seen in the previous price surges in 1973-74 and 1979-80, metal prices tend to rise extremely rapidly once inventory shortage starts to develop,” the company says in a recent release.

Also, the slumping U.S. dollar means current prices are relatively low (by historical standards) when translated into stronger world currencies, and inventory restocking “has tended to exaggerate the level of demand and contribute to the rapid fall in inventory levels,” First Marathon says.

Two other factors specifically affecting the price of nickel are Falconbridge’s stoppage of shipments from its ferronickel plant in the Dominican Republic following the imposition of a 25% levy by that country’s government on nickel imports (the plant turns out about 5% of the world’s non-Communist production), and China’s decision to impose a 20% duty on its nickel exports, reportedly because the country is not producing enough nickel to meet its own domestic needs.

Also, demand for nickel from stainless steel producers is extremely high and another reason the metal is in short supply.

Copper inventories are definitely tight. International Asset Investor reported last month worldwide inventories for copper have fallen to five weeks’ supply.

An unknown factor, at present, on the price of copper is what effect scrap metal would have if introduced to the market in large quantity. Shearson Lehman Brothers reports scrap accounts for about 40% of the total copper supply. Exactly what price level would start moving scrap dealers in earnest remains to be seen.

Copper in 1986 averaged 62 cents and nickel, $1.76.

On the New York Commodity Exchange, the May price for copper is currently pegged below the $1.10 mark.