METALS COMMENTARY — Demand for steel stronger than usual

Driven by investor sentiments, metal markets remain jittery.

On a month-over-month basis, inventory levels for almost all metals, on and off the world exchanges, continue to fall. And while a serious economic slowdown is not yet apparent, what is evident is that the demand and prices for most commodities are rising.

News that the U.S. government is proposing faster disposals of stockpiles has triggered some initial concern among producers, resulting in softer prices for certain metals. Nevertheless, this program, if it materializes, seems unlikely to affect short-term metal balances.

Steel, foundry and stainless steel companies all report firmer demand than normal for the summer season, and most have orders that stretch months into the future. Affected by consumer hesitation in the home and auto sectors, carbon steel is somewhat less in demand, though the market remains relatively firm. An upturn in capital spending appears to be masking any serious sectoral dips in consumer demand.

Continuing demand for long-lasting alloys in the stainless steel sector has resulted in increases in melting rates to between 10% and 20% for many foundries and alloy manufacturers.

Scrap exports from North America are surging as hungry mill agents continue to acquire ever-larger quantities. Significantly, these higher-than-normal scrap premiums are adding strength to virgin base metal sales.

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

Nickel rose to US$3.89 per lb. (US$3.57) as inventories fell to 79,026 tonnes (88,464 tonnes at the end of June).

Slower summer demand kept free-market quotes for Western A Grade cobalt at US$27 per lb. (US$27.25 on July 1).

Quiet summer markets, but unusually high summer temperatures (which, like cold, also cause more frequent battery failures), held lead steady at US28.2 cents (US27.8 cents) per lb., as stocks fell again, to 236,050 (243,850) tonnes.

Steady but lower seasonal demand kept zinc at US46.7 cents (US46.9 cents) per lb. as stocks dropped to 803,275 (831,975) tonnes.

This week, after falling for months to levels not seen in years, LME copper stocks jumped unexpectedly by 13,460 tonnes. The sudden reversal unsettled some investors, causing a retreat in prices for many metals. With annual world consumption of 13 million tonnes, a lot more stock will be required to bring about more than a short-term price reversal. On a monthly basis, the combination of inventories on the LME and Commodity Exchange of New York fell to 164,511 (178,360) tonnes as the red metal strengthened to US$1.41 (US$1.358) per lb.

Spot molybdenum oxide prices have ebbed to $6.50 and producer prices remain around US$7 per lb. (unchanged from the end of June).

Meanwhile, precious metals are treading quietly, with gold sitting at US$386.11 (US$387.65) per oz. and silver averaging US$5.17 (US$5.37) per oz.

Platinum eased slightly to US$435.03 (US$438.37) per oz., as did palladium, to US$155.89 (US$158.68) per oz. Rhodium began to ease back during June but, at last report, was relatively steady at US$500 (US$535) per oz.

— Jack Dupuis is a metals agent, broker and consultant specializing in the marketing of metals.