METAL MARKETS Base metals beat summer doldrums

Low inventory levels and a weak U.S. dollar are preventing a summer slowdown in base metals markets, and in precious metals the sideways action is a positive action, First Marathon Securities says in a recent release.

With the arrival of June, base metal markets have been known in past years to slow down in volume and see their prices drop, but not this year.

“Admittedly, prices of several of the metals are down slightly over the last four weeks, but with four out of the five major metals still in backwardation, and all prices still well up over the last six months, this is not a normal summer,” First Marathon writes.

In addition to lower inventories and the weak U.S. dollar, demand remains strong. “Providing this pattern doesn’t alter over the next two months — and we don’t expect any change — metals prices are likely to move higher in anticipation of stronger demand in the final quarter of the year,” says the release.

Copper, First Marathon points out, is at its lowest inventory level since 1974, when prices reached as high as $1.40(US) per lb, while for aluminum, inventories are at their lowest since 1980, with aluminum spot prices peaking at more than 90 cents per lb that year. Similar patterns

“In nickel, zinc and lead similar inventory patterns exist,” says the release. “In each case, inventories are at, or below, normal working patterns and, with low prices keeping production under control, there seems a good chance inventory levels will continue to fall, bringing with them higher prices.”

In zinc and lead, the strike at Cominco Ltd.’s B.C. operations is keeping metal off the market. As well, there may be a strike at Brunswick Mining & Smelting’s operations in New Brunswick at the end of June.

In nickel, several smelter shutdowns are scheduled this summer, but First Marathon cautions that the Soviet Union remains a “wild card” because it has sold less nickel to the West so far this year compared with 1986.

Spot prices for copper were recently running in the 74 cents -75 cents range, aluminum in the 71 cents -72.5 cents range, nickel in the $2.13-$2.20 per lb range, zinc in the 48 cents -48.5 cents per lb range, and lead in the 37 cents per lb range.

Commenting on gold, First Marathon suggests the precious metal is holding its own at the $440-$450- per-oz level. “From our standpoint, several weeks, or months, of further consolidation before a subsequent move upwards still seems the most likely course,” says the release about gold.

In the near future, First Marathon sees the base metals markets providing better action for investors than the precious metals markets.