METAL MARKETS — Global mining competition grows

Metal production and consumption estimates for 1992 and projected volumes for 1993 have begun to appear. Some observations:

The restructuring of American and Commonwealth of Independent States defence industries to other areas of endeavor is creating a significant drop in military personnel and metals needs. Integration of these resources into alternative commercial areas is proceeding slowly.

Sales of surplus Russian metals, particularly nickel and aluminum, have flooded into western markets and this trend will probably continue for some time.

The importance of raw materials wealth generation has dawned on a host of “born-again”countries which are now eagerly revamping their mining codes to attract exploration and mining.

The Organization for Economic Co-operation and Development (OECD) governments, including Canada’s, which have been raising taxes and implementing obstructive environmental regulations, are finding they now have serious competition.

OECD steel plants and equipment erected in the period 1940-1970 are increasingly uncompetitive as new capacity is locating in lower-cost jurisdictions. Iron ore, steel scrap and other raw materials can be economically hauled thousands of miles for conversion into finished product. There, the plants are designed to satisfy local markets and export at least a similar tonnage, usually back to OECD markets. Once built it becomes increasingly difficult to justify pouring similar funds into outdated plants in high cost places such as Canada or the U.S. The result is that local growth is gone for a plant’s economic life cycle and demand is increasingly satisfied by imports.

In reaction, we see bounties, grants, tariffs, selected tax discounts and other forms of protectionism which only delays the inevitable. If the Canadian government does not soon enact legislation to ensure federal, provincial and the myriad local annual taxes do not exceed in total 50% of net income, then we must expect to see mining and other industry continue to relocate.

Russian cobalt shipments to the West and regular production in 1992 totaled about 23,000 tonnes compared to 20,000 tonnes of consumption. Uneasiness over conditions in Russia and Zaire should keep prices firm. With March values in brackets, April prices to date are: western brands $15 ($15) per lb., Russian $13 ($13) and producers $18 ($18).

Falconbridge estimates surplus nickel production of 19,000 tonnes in 1993 compared with 66,000 tonnes in 1992. To date, April LME nickel is up slightly to $2.737 ($2.71) per lb. as LME inventories rose to 88,398 (86,910) tonnes. Production and demand of molybdenum at 180,000 tonnes are in balance with an estimated six months’ inventory as opposed to a more normal three months. Oxide remains steady at $2.10 ($2.14) per lb.

Western copper production and consumption were essentially in balance in 1992 at an estimated 9 million tonnes. Reflecting some recent softness, mainly in Europe, inventories have been edging upwards and more expected new mine capacity may push prices down in 1993. LME cash prices for copper fell to US94.1 cents (97.6 cents) per lb. as LME and Comex copper inventories rose again to 463,997 (452,114) tonnes.

Western lead markets were oversupplied in 1992 by about 250,000 tonnes, some of which found its way onto the LME. A positive note for 1993 prices is the recent spate of producer shutdowns and curtailments which is tightening concentrate supplies which will eventually be reflected in finished metal prices. Cash LME prices were quiet at US19.1 cents (18.4 cents) per lb. as stocks were up again to 247,575 (245,775) tonnes.

Production of zinc in 1992 exceeded consumption of about 5.3 million tonnes by some 400,000-500,000 tonnes, with much of the surplus also appearing on the LME. Cash prices were steady at US45.2 cents (45.2 cents) per lb. as stocks edged up to 604,200 (599,825) tonnes.

Precious metals were generally ahead. To date in April, platinum moved ahead to US$362.56 ($350.03) per oz. Palladium also gained to US$113.05 ($106.02) per oz. and rhodium slipped to US$1,320 ($1,400) per oz. Strong speculative demand pushed gold to US$338.06 ($329.97) per oz. and silver to US$3.87 ($3.65) per oz.

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