Nineteen-eighty-eight has seen unexpected prices for most mine products. Base metal markets have been characterized by very tight immediate supply from terminal markets leading to very high prompt prices. Mine product prices always reflect supply/demand balance and buyer attitudes. Usually, when stocks are falling, prices rise; and when stocks are increasing, prices fall. Often there is a lag in this process, which reflects the buyer’s attitude. If, regardless of supply/demand swings, the buyer does not believe supplies will be hard to secure, then the buyer does not build inventory, and price movements will be slow to follow falling stocks. When the buyer believes supplies may be difficult to secure, then the buyer attitude changes to one of inventory accumulation, which immediately increases demand on the market, and extreme price rises can then occur. This is what happened from the fourth quarter of 1987 through to the first half of 1988.
All mine products are priced internationally in U.S. dollars. When the U.S. dollar is at a high value relative to other currencies, a relatively low U.S. dollar price translates into a high price in other currencies. But when the U.S. dollar is low, relative to other currencies, then in order to achieve the same price in other currencies a high U.S. dollar price is required. With a low U.S. dollar over the past year, what appear to be high levels of prices in U.S. dollars are actually much lower prices in other currencies. So the increase is not nearly as big as it seems if one removes the currency effect.
What all this really means is that currency movements have a significant impact on price levels in U.S. dollars. In the past year, we’ve had a falling U.S. dollar and falling stocks, so there has been a double whammy effect pushing up U.S. dollar prices. As the dollar is now rising and high recent prices will probably draw supply to the market, the forward picture does not look like more of the same. Very high cash prices for commodities appear to have peaked in the second quarter and, with supplies improving, lower price levels should be anticipated over the next 18 months.
Demand remains good and, in the absence of a recession, price levels should remain at satisfactory levels in U.S. dollars for Canadian mining products.
After the October, 1987, stock market crash, there was concern that a sharp recession would follow. This has not happened and it seems likely that economic expansion will continue through the first half of 1989, with the possibility of a slowdown instead of a recession in the second half of 1989 — sort of an adjusting phase. After that, there is the promise of sustained, steady economic growth into the mid-1990s.
This brighter picture is heavily dependent on the continuation of government withdrawal from intervention and regulation, combined with the outreaching pursuit of investment and trade liberalization. Completion of the Canada/U.S. Free Trade Agreement is obviously very key to Canada’s prospects and is specifically important for the Canadian mining industry. As we focus on markets for the 1990s, all of us in Canadian mining should be very aware of the need for verifiable, high-quality products meeting customer specifications; rapidly changing material demands for end products by our customers; and increased efforts in product research and market development.
Let’s turn to specific metals. It is probable that the world will be adequately supplied with copper at price levels in current U.S. dollars of 80 to 90 per lb. With consumption growth of 2% per annum or better, these price levels should be a safe lower range for the forward period. In a recession, which would draw inventory from consumers onto the market, prices could temporarily drop to 60 or 65 , but world supply can’t be adequately sustained at these lower levels.
For the first time in some years, some bright growth opportunities for copper have appeared, especially in the conductor field. The “smart house” concept developed by U.S. home builders promises significant expansion in both the variety and quantity of wiring in a totally systems- integrated living environment, combining coaxial cable, electrical wiring and signals sytems in one flat conductor. In motor vehicles, expanded electronics will take the number of circuits from 450 in the typical 1975 vehicle to 900 in the typical 1988 vehicle and to 1,200 in the 1992 model. Conductors now make up nearly half of all copper consumption, with the added value and volume expected to grow over the next 10 years.
Super-conductivity development based on the copper oxide system is moving rapidly to practical applications, which is seen as very positive for future growth in copper-based distribution systems. The development of zinc-based solders to deal with the probable banning of lead solders for water tubing is an important initiative in preserving copper’s plumbing market.
The zinc price rise was slower than for other metals, mainly because of the perception of surplus capacity in Europe. This capacity is now fully utilized, and zinc prices moved up steadily in the second quarter, peaking in June at just under 70 (us) per lb. At this level, customer resistance was clearly felt, and prices will probably settle around 50 as a satisfactory level to both buyers and sellers and at which adequate supplies can be provided. A recession bottom for zinc is probably about 40 .
Consumption growth will quite probably be 2% per year or better because of rapidly increasing consumption in the newly industrialized countries and significant expansion of zinc-coated steel as both a core construction and motor vehicle material. An exciting project with General Motors is the development of motor vehicle assembly based on zinc-coated steel space frames using some 30 lb of zinc per vehicle. Several Corvettes and Cameroes have been built on hot-dip, galvanized space frames, and this could become a major assembly practice by the mid-1990s.
Gold and silver, meanwhile, have been trading in parallel fashion. In recent months, U.S. dollar prices have been tracking in inverse fashion the value of the U.S. dollar, rising as the greenback fell and falling as it rose. More than half the time these metals function as currencies moving in consort with the dollar. They can also behave as commodities with price movements a function of supply/ demand and, occasionally, they are influenced as investments of last resort by people in peril.
Looking forward, high U.S. dollar prices in recent years have brought on significant new supply. So far, this supply is being absorbed and, apart from normal consumption, there is still high interest in holding gold and silver as preservers of wealth, particularly in Asia and India. The rising U.S. dollar currently reflects the declining U.S. trade deficit and the greater confidence in the U.S. economy. Gold and silver prices could well decline further from their recent levels if the dollar continues falling. William Deeks is president of Noranda Sales Corp.
Nineteen-eighty-eight has seen unexpected prices for most mine products. Base metal markets have been characterized by very tight immediate supply from terminal markets leading to very high prompt prices. Mine product prices always reflect supply/demand balance and buyer attitudes. Usually, when stocks are falling, prices rise; and when stocks are increasing, prices fall. Often there is a lag in this process, which reflects the buyer’s attitude. If, regardless of supply/demand swings, the buyer does not believe supplies will be hard to secure, then the buyer does not build inventory, and price movements will be slow to follow falling stocks. When the buyer believes supplies may be difficult to secure, then the buyer attitude changes to one of inventory accumulation, which immediately increases demand on the market, and extreme price rises can then occur. This is what happened from the fourth quarter of 1987 through to the first half of 1988.
All mine products are priced internationally in U.S. dollars. When the U.S. dollar is at a high value relative to other currencies, a relatively low U.S. dollar price translates into a high price in other currencies. But when the U.S. dollar is low, relative to other currencies, then in order to achieve the same price in other currencies a high U.S. dollar price is required. With a low U.S. dollar over the past year, what appear to be high levels of prices in U.S. dollars are actually much lower prices in other currencies. So the increase is not nearly as big as it seems if one removes the currency effect.
What all this really means is that currency movements have a significant impact on price levels in U.S. dollars. In the past year, we’ve had a falling U.S. dollar and falling stocks, so there has been a double whammy effect pushing up U.S. dollar prices. As the dollar is now rising and high recent prices will probably draw supply to the market, the forward picture does not look like more of the same. Very high cash prices for commodities appear to have peaked in the second quarter and, with supplies improving, lower price levels should be anticipated over the next 18 months.
Demand remains good and, in the absence of a recession, price levels should remain at satisfactory levels in U.S. dollars for Canadian mining products.
After the October, 1987, stock market crash, there was concern that a sharp recession would follow. This has not happened and it seems likely that economic expansion will continue through the first half of 1989, with the possibility of a slowdown instead of a recession in the second half of 1989 — sort of an adjusting phase. After that, there is the promise of sustained, steady economic growth into the mid-1990s.
This brighter picture is heavily dependent on the continuation of government withdrawal from intervention and regulation, combined with the outreaching pursuit of investment and trade liberalization. Completion of the Canada/U.S. Free Trade Agreement is obviously very key to Canada’s prospects and is specifically important for the Canadian mining industry. As we focus on markets for the 1990s, all of us in Canadian mining should be very aware of the need for verifiable, high-quality products meeting customer specifications; rapidly changing material demands for end products by our customers; and increased efforts in product research and market development.
Let’s turn to specific metals. It is probable that the world will be adequately supplied with copper at price levels in current U.S. dollars of 80 to 90 per lb. With consumption growth of 2% per annum or better, these price levels should be a safe lower range for the forward period. In a recession, which would draw inventory from consumers onto the market, prices could temporarily drop to 60 or 65 , but world supply can’t be adequately sustained at these lower levels.
For the first time in some years, some bright growth opportunities for copper have appeared, especially in the conductor field. The “smart house” concept developed by U.S. home builders promises significant expansion in both the variety and quantity of wiring in a totally systems- integrated living environment, combining coaxial cable, electrical wiring and signals sytems in one flat conductor. In motor vehicles, expanded electronics will take the number of circuits from 450 in the typical 1975 vehicle to 900 in the typical 1988 vehicle and to 1,200 in the 1992 model. Conductors now make up nearly half of all copper consumption, with the added value and volume expected to grow over the next 10 years.
Super-conductivity development based on the copper oxide system is moving rapidly to practical applications, which is seen as very positive for future growth in copper-based distribution systems. The development of zinc-based solders to deal with the probable banning of lead solders for water tubing is an important initiative in preserving copper’s plumbing market.
The zinc price rise was slower than for other metals, mainly because of the perception of surplus capacity in Europe. This capacity is now fully utilized, and zinc prices moved up steadily in the second quarter, peaking in June at just under 70 (us) per lb. At this level, customer resistance was clearly felt, and prices will probably settle around 50 as a satisfactory level to both buyers and sellers and at which adequate supplies can be provided. A recession bottom for zinc is probably about 40 .
Consumption growth will quite probably be 2% per year or better because of rapidly increasing consumption in the newly industrialized countries and significant expansion of zinc-coated steel as both a core construction and motor vehicle material. An exciting project with General Motors is the development of motor vehicle assembly based on zinc-coated steel space frames using some 30 lb of zinc per vehicle. Several Corvettes and Cameroes have been built on hot-dip, galvanized space frames, and this could become a major assembly practice by the mid-1990s.
Gold and silver, meanwhile, have been trading in parallel fashion. In recent months, U.S. dollar prices have been tracking in inverse fashion the value of the U.S. dollar, rising as the greenback fell and falling as it rose. More than half the time these metals function as currencies moving in consort with the dollar. They can also behave as commodities with price movements a function of supply/ demand and, occasionally, they are influenced as investments of last resort by people in peril.
Looking forward, high U.S. dollar prices in recent years have brought on significant new supply. So far, this supply is being absorbed and, apart from normal consumption, there is still high interest in holding gold and silver as preservers of wealth, particularly in Asia and India. The rising U.S. dollar currently reflects the declining U.S. trade deficit and the greater confidence in the U.S. economy. Gold and silver prices could well decline further from their recent levels if the dollar continues falling. William Deeks is president of Noranda Sales Corp.
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