METALS COMMENTARY — Bull market for metals takes breather

All is not well in metal markets. Behind the wall of strong worldwide demand, conflicts are developing as physical and financial sectors diverge.

After the the latest surge in exchange worries and the recent run-up in metal prices and interest rates, many steel and alloy companies (as well as many consumers) appear to have stepped aside to live on inventories and await further developments.

Rising North American interest rates are slowing some big ticket consumer purchases, but, overall, the economy remains robust.

The American auto and housing sectors are down slightly, which will have some moderate impact on steel, aluminum, copper, zinc and lead.

Demand is growing rapidly in Europe, with lead times for some steel and alloy products stretching into the second half of 1995.

The recent earthquake in Japan is expected to add to the already rebounding economy, as reconstruction of an urban area roughly the size of Toronto gets under way.

The aftershocks of the Mexican currency devaluation, combined with apprehension about further international upheavals, are stalling some trade movements and terms, mainly with regard to pricing and currency hedging. Many offers are good only for the day or price in effect for future deliveries. With manufacturers on the sidelines for all but normal contract needs, spot prices are expected to retrace and consolidate until markets re-assess and decide on future directions.

Amid steady declines which have seen exchange inventories return to levels of a year ago, base metal prices dropped sharply during the first week of February, then bounced back as players absorbed a series of hammer-like rumor attacks mostly attributed to funds selling. In fact, it could have been any or all of the market participants selling — major European steel consumers, producers or funds.

The following average prices and inventories of the London Metal Exchange (LME) are for the month of February to date (with the previous month’s figures shown in parentheses).

A barrage of new project announcements and heavy selling attributed to funds caused nickel to plunge to US$3.93 (US$4.35) per lb. Inventories fell again to 134,790 (148,080) tonnes, and daily spot prices hit US$3.62 before recovering.

With African output falling, cobalt free-market quotes for Western A grades were again steady at US$29.50 (US$30) per lb.

News of good battery sales and shortages of scrap batteries held lead at US26.3 cents (US30.2 cents) per lb. as stocks fell again, to 319,550 (328,750) tonnes.

News of U.S. government proposals to replace lead shotgun pellets and plumbing alloys with bismuth and tin alloys may further improve the outlook for these metals. Tin has not fully recovered its consumption niche. Zinc prices also eased, to US47 cents (US52.5 cents) per lb., as stocks accelerated their recent weekly declines to 1.1 million (1.2 million) tonnes. Still reflecting healthy fundamentals, the combination of inventories on the LME and the Commodity Exchange of New York fell again, to 306,150 (327,288) tonnes, as copper prices held near their recent highs at US$1.31 (US$1.36) per lb.

News of U.S. producer plans to resurrect shuttered capacity, combined with ongoing difficulties with Chinese deliveries and a scarcity of spot consumers, kept molybdenum oxide spot price quotes unchanged at US$15 per lb. Spot quotes for ferro-moly have widened and are now US$15-31 per lb. of contained moly.

Precious metals were all unmoved in quiet markets. With stale news of low central bank selling during 1994, gold was flat at US$375.88 (US$378.75) per oz. Silver, likewise, was unmoved, with prices at US$4.72 (US$4.77) per oz. Good auto numbers kept the platinum group metals steady as platinum edged up to US$413.61 (US$413.64) per oz. and palladium improved slightly to US$157.30 (US$156.01) per oz. Rhodium eased to US$565 (US$610) per oz. — Jack Dupuis is a metals agent, broker and consultant specializing in the marketing of mining properties.