METAL MARKETS — Devaluation of dollar helps Canadian

The drop in world metal consumption is adding to miners’ woes as producer and terminal market metal stocks rise to the highest levels in recent years.

In reaction, prices are slipping as consumers restrict inventory buying. To date, most western metal producers have halted capital investment, put expansions on hold, shut down high cost mines and are frantically chopping production costs. Fortunately, and extremely timely for Canadian miners and other exporters, the Canadian dollar is sliding sharply against the U.S. dollar.

With international metal sales prices set on the basis of the U.S. dollar, Canadian mining companies will realize substantial assistance to revenues from the devaluation.

For example, depending on average realized nickel metal prices, Inco (TSE) annually loses or gains $15-20 million on nickel sales for every penny up or down against the U.S. dollar. The equivalent Falconbridge number is $5 million.

While costs for imported supplies will eventually adjust upwards, the timing difference is important. Additional revenue begins immediately on U.S. receivables and current sales while costs are incurred only when purchases are made from newly imported supplies. Canadian metal consumers receive higher costs on both metal purchases and imported supplies.

It appears the pace of competitive devaluations is increasing. If these massive economic jolts do not soon moderate, international trade will slow even more because of domestic resistance to devaluation-spawned price increases and the need to avoid inventory holding currency risks. Surging nickel inventories and slumping prices are causing increased industry concerns. With October numbers in brackets, average to date November LME cash nickel prices fell to US$2.516 ($2.861) per lb. as inventories jumped again to 60,870 (55,080) tonnes.

Western brand cobalt dealer prices are holding around $16 per lb. African producers continue to officially sell at $25 with some discounting of less pure forms. Industry speculation suggests a 1993 producer price of $18 is sustainable in current markets.

Molybdenum fundamentals continue to show signs of improvement and return to a healthy market condition. When the American primary producers cut output, prices recovered to the US$2.50-per-lb. range before settling back to $2.10 on the recent economic weakness.

The tonnage reductions were recognition that the byproduct producers (mainly with copper) have little ability to react to dropping prices and will continue their production as long as copper prices stay at profitable levels. Western consumption and production are now thought to be in balance about 180-190 million lb. Inventories, which reached about six months’ consumption last year, should start to reduce when steel industry

requirements return to regular levels.

After rising for several weeks, LME and Comex copper inventories steadied at 387,820 (387,750) tonnes. Average LME cash prices eased to US97.9 cents ($1.022) per lb.

Zinc markets slipped and then steadied with LME prices down to US47 cents (52.8 cents) per lb. and stocks off slightly to 376,725 (377,575) tonnes. On reports of lower than normal battery sales, LME lead prices slid to US20.9 cents (24.4 cents) per lb. as stocks rose again to 194,100 (181,475) tonnes. Precious metals were quiet. Platinum eased to US$355.30 ($358.13) per oz. Palladium was virtually unchanged at US$94.57 ($94.75) per oz. Gold remains volatile at US$335.14 ($344.29) per oz. and silver improved to US$3.78 ($3.75) per oz.

— Jack Dupuis is a minerals marketing consultant based in Thornhill, Ont.