Editorial: Base metals prices nosedive

The global economic crisis worked its way deep into the base metals sector during the week ended Oct. 11, the 41st trading week of 2008, as prices for virtually all base metals contracted sharply.

• Copper traders watched slackjawed as prices for the red metal dropped about 20% over the week in response to freefalls in global equity markets, a stronger U. S. dollar and new concerns about medium-term Chinese demand.

Spot copper bottomed at just US$2.12 per lb. on Oct. 10, down from US$2.63 a week earlier. On the London Metals Exchange, 3-month copper dropped US$1,210 per tonne to US$4,800 per tonne, while on the COMEX, December copper sank US54.55 to US$2.1445 per lb.

Remarkably, after having peaked at record levels above US$4 per lb. as recently as early July, copper prices are now at 2.5-year lows, having dropped some 40% in little over three months.

Copper supplies are still relatively tight around the world, but there are growing worries over a longer-term oversupply. The International Copper Study Group — which for the moment is still quite bullish on copper demand going forward — now predicts a growing surplus of 100,000 tonnes and 277,000 tonnes in 2008 and 2009, respectively.

• Nickel’s performance was even worse than copper, with the spot price plummeting to a paltry US$5.17 per lb. on Oct. 10, off 25% from the previous Friday’s US$6.89 per lb.

These are the kinds of numbers that will kill any low-grade, high-tonnage nickel projects on the drawing board.

Nickel prices are off about 75% since all-time highs above US$23.50 per lb. (US$51,800 per tonne) were reached in May 2007.

It now looks like Inco and Falconbridge shareholders sold out to foreigners at exactly the right time.

Another nickel investor with great timing was Russian oligarch Mikhail Prokhorov, who in April sold his 25% interest in Norilsk Nickel to Russian aluminum giant Rusal for an undisclosed amount that reportedly included US$7 billion in cash. That 25% stake was worth US$13 billion then, and is worth about US$3.4 billion now.

Prokhorov has since bought half of investment bank Renaissance Capital for US$500 million, a quarter of its price a year ago.

•Most other non-precious metals such as zinc, lead, tin, molybdenum, various ferroalloys, cobalt, aluminum and uranium, saw similar rapid declines seemingly based more on market sentiment than any stark changes in fundamentals.

With zinc in the dumper and good inventory levels, Xstrata Copper isn’t exactly in a rush to reach an agreement with striking union workers at its Kidd Creek Metallurgical site in northern Ontario. Workers, who are represented by the Canadian Auto Workers Local 599, walked off the job on Oct. 1 at the facility, which produces 140,000 tonnes per year of zinc.

Meanwhile, Platts reports that Xstrata is also negotiating with Somali pirates to release the Stella Maris, a Japanese-registered ship that was en route between the Mt. Isa mine in Australia and a London refinery. The pirates seized the ship, its crew and cargo of 40,000 tonnes of lead ingot and zinc concentrate off the Puntland Coast on July 20.

• The currencies of commodity exporting countries also took a beating during the week. With oil sinking below US$80 a barrel, Canada’s loonie turned in its biggest one-day decline ever on Oct. 10, free-falling US4.87 during afternoon trading to US82.41 before recovering to US86.09 at presstime. The loonie has lost a quarter of its value against the greenback since peaking at US$1.103 last November.

•With the share prices of junior miners in steep decline over the past half year, we’ve already seen dozens of CFOs jumping ship. But we may be entering a new phase of stepped-up boardroom battles over personnel issues, corporate direction and what to do with treasuries that exceed market capitalizations.

Simmering discontent with the share price performance of former high-flyer Noront Resources spilled into the open with dissident shareholder Rosseau Asset Management proposing a new board.

It’s tough to predict the outcome of this one: Noront has an entrenched, “old-school” management that sees itself as a victim of unrealistic expectations and the larger economic downturn, but the group now faces an aggressive dissident that has proposed a technically and financially strong slate of replacement directors that brings in highly successful former Aurelian Resources personnel.

Send your Letters-to-the-Editor and other op-ed submissions to the Editor at: tnm@northernminer.com, fax: (416) 510-5137, or 12 Concorde Pl., Suite 800, Toronto, ON M3C 4J2.