METAL MARKETS — Precious metals buoy summer markets

Bull market news continued to buoy precious metals markets as prices maintained the upward surge which began in March. Analysts have proposed a host of reasons for the prolonged advance, but most of them have little basis in fact. The major influence appears to be currency confidence in several countries.

Central banks are devoting much more of their time and reserves to defending their currencies.

Growing currency unease in China, Russia and several European countries accounts for most of the recent unrest as investors flee for protection to metals or the ever-popular U.S. dollar, to await developments. Almost all European currencies are wobbling against the German mark and a new set of alignments are needed before nerves can settle.

As a result, investor purchases and central bank sales to stabilize markets and raise funds will persist for a while longer. Average July gold prices moved ahead to US$392.03 per oz. and prices may test the US$425-per-oz. level shortly.

In silver, current annual demand exceeds production by 90 million oz. Jewelry demand is particularly strong throughout Asia. In India, the reduction in import duties on silver to more reasonable rates spurred 1992 demand to levels 30% over those of 1991, and this trend is continuing in 1993. Adding to this is the fact that currency pressures in July helped push silver to US$4.98 per oz.

Continued improvements in auto and auto catalyst production lent support to prices for platinum, palladium and rhodium, as did rumors of production difficulties at the Russian nickel complexes where these metals are important byproducts. Russian sales traditionally supply 19%, 54% and 21% respectively of Western demand for these noble metals. Platinum jumped to US$402.90 from US$383.69 per oz. and palladium to US$139.42 from US$126.89 per oz. during our report period. Still under pressure due to several large Russian parcels rumored to be available, rhodium eased again to US$750-800 per oz. Base metal markets were generally quiet as the summer holiday period peaked in the northern climes. The good news is that many metal-consuming industries either shortened their shutdowns or continued to operate through the period. Geographically, stainless steel markets are improving as relatively low prices add to demand. Canadian and U.S. stainless mills are running near capacity. Even in Europe, where consumer activity is slow, stainless mills are busier and some are not closing this year. Japans stainless output is also improving rapidly.

Stainless scrap, which on average contains 8% nickel and whose values have been pulled down by low nickel prices, is in good demand and supply is tight. European mills are again buying in the U.S. as Russian supplies, which have been a major source for the past two years, appear to be dwindling. The International Nickel Study Group estimated that world production between January and May was 327,800 tonnes and that consumption was unchanged at 347,600 tonnes. Despite all this good news, Russian nickel arrivals in Rotterdam began again, after slowing for several months. Average London Metal Exchange (LME) nickel in July dropped to US$2.28 from US$2.51 per lb. in June as LME inventories jumped to 101,568 from 86,646 tonnes.

Meanwhile, lower availability of both Zairian and Russian brands is firming cobalt. Spot end-of-July prices were steady at US$12-13 per lb. Western brands are at US$13 per lb. (compared with US$14.50 in June), Russian US$10-11 per lb. (US$13 in June) and producers officially at US$18 per lb. (US$18 in June) and discounting.

More closures and heavy rains in the central U.S., and resulting shipping difficulties, kept lead LME prices in a narrow range at US18 per lb. as LME stocks again rose, to 272,500 from 261,675 tonnes. Good deliveries and low inventories by North American producers are allowing premiums to rise slowly in the U.S.

Weather and potential labor problems supported copper for most of the month as prices edged up to US87 from US84 per lb., as LME and Commodity Exchange of New York inventories also continued their slow rise, reaching 567,133 tonnes.