Inventory levels dog metals markets

Metal markets, though bloated with high production and inventories, continue to draw encouragement from consumption figures.

Announcements of cutbacks and increased consumption are welcome but are not expected to alter market fundamentals, at least not in the short-term. Sustained price improvements are difficult when visible exchange stocks are high and rising.

During this recession, producers have cut costs rather than substantially affect output. One difference from previous downturns has been the coincidental collapse of the economy of the former Soviet Union. This has triggered a sudden increase in metal exports into Western markets, and Western producers, in response, have had to compete with these heavily-government-subsidized products.

It now appears that ouput from the Commonwealth of Independent States (as the USSR is known today) is on the wane, or at least becoming more orderly; this is partly the result of trade barrier threats.

To make a long story short, the persistent recession of metals prices may continue for a time, perhaps a few more months. That’s the downside of the market.

Meanwhile, positive factors are gathering strength.

The powerful U.S. economy is surging upwards. Europe, which lags the U.S. by a few months, is beginning a turnaround. Japan has also begun a recovery. While metal demand in most countries is showing month-over-month improvement, inventory reductions are difficult to achieve with current high refinery output.

Low levels of industrial production, scrap generation and future scrap levels are raising demand and prices for most metal scrap. Prices are now equal to, and occasionally higher than, the London Metal Exchange (LME) values for virgin metals, which should benefit their sales.

In base metals, nickel’s stronger consumption and slowly rising inventories have increased prices. Average-to-date December LME prices (comparable figures from last month are in parentheses) are US$2.15 (US$2.10) per lb. Inventories moved up only slightly to 119,904 (119,196) tonnes. The fact that African cobalt producers did not announce a new producer price has led to a more competitive market, and this served to soften prices in late November and early December. At presstime, Western brands were at US$10.75 (US$11.50) per lb., with Russian counterparts at US$10 (US$11). Supported by lower production and tight producer availability, LME lead prices traded in a narrow range at US19.6 cents (US18.1 cents) per lb., as LME stocks wavered around 298,075 (298,750) tonnes.

Supported by better automotive numbers, but still in need of more cutbacks in supply, LME zinc stocks increased again, reaching 870,575 (864,525) tonnes. Prices rose slightly on fund-buying, to US42.6 cents (US42.1 cents) per lb. LME inventories now approximate two months’ consumption and are growing steadily.

In quiet markets, LME copper prices were ahead at US74.9 cents (US73.9 cents) per lb. as the combination of LME and Commodity Exchange of New York inventories edged up to 665,397 (663,782) tonnes.

Three factors — the merger of Cyprus and Amax, rising production of byproduct molybdenum oxide from copper ores, and improvements in steel production — held molybdenum prices to around US$2.70 (US$2.55) per lb. Lacking strength, gold prices continue to fluctuate at US$373.38 (US$373.94) per oz. Showing slightly more vigor, silver was ahead at US$4.63 (US$4.53) per oz.

Reflecting short-term softness and a need to consolidate, platinum eased to US$371.66 (US$374.62) per oz. and palladium settled to US$123.19 (US$128.45) per oz. Rhodium is also down slightly, at US$1,020 (US$1,050) per oz. — Jack Dupuis is a metals agent, broker and consultant specializing in the marketing of mining properties.