METALS COMMENTARY — Scrap leads pack as recovery continues

The fast pace of economic activity during the first half of 1994 looks set to continue at least for the balance of the year.

In ferrous markets, integrated steel producers are taking all available iron ore production and bidding for higher-than-normal quantities of scrap. This is putting pressure on prices, as non-integrated steel producers can buy their iron units only in scrap form. Efforts by steel producer groups to dictate scrap buying have been largely ineffective as bundles of No. 1 scrap surged to the US$190-per-tonne range before settling back in recent weeks to $160 per tonne.

In the U.S., the world’s largest exporter of stainless scrap (and now generating a lot of the material), the industry saw first-quarter exports surge 56% over the same period in 1993. Prices are naturally beginning to creep up, with current levels at US$715 per tonne (or US$2.64 per lb.) for the nickel units contained therein. The inability of exporters within the Commonwealth of Independent States to obtain any new scrap or find much readily available old scrap peaked last year, and some mill buyers are suddenly re-establishing buying habits not seen in world markets for several years.

Among the causes of these welcome events are:

* the strong pickup in the main western countries, led by the robust U.S. economy;

* the inability of most companies over the past few years either to plan sales or, more importantly, commit to forward purchases beyond the current month or quarter at most; and

* the historically low and potentially dangerous levels of stocks on hand. In all metals, scrap has been in very high demand of late and industry sources think scrap prices will easily recover their recent modest setbacks in the second half of the year.

In base metals, many companies have planned shutdowns during July and August. As was not the case in previous years, most holiday periods will be the minimum instead of the maximun.

The following prices and inventories of the London Metal Exchange (LME) are for July to date, with last month’s figures shown in parentheses. Low Russian arrivals, holidays and persistently strong stainless steel demand are keeping nickel prices somewhat steady at US$2.81 (US$2.85) per lb. as inventories have stabilized at 132,762 (132,498) tonnes.

U.S. government stockpile sales continue to keep a lid on cobalt prices, which remain unchanged at at US$24 per lb. Russian products are also unchanged at US$20.

Supported by very strong physical demand, lead prices have climbed to US26 cents (US24 cents) as stocks remain little-changed at 355,925 (354,725) tonnes.

A good U.S. market and announcements of cutbacks from European producers, together with rising demand, held zinc prices at US43 cents (US44 cents) as stocks appear to be stable at 1.2 million tonnes.

Supported by rising housing demand, copper has steadied at US$1.10 (US$1.07) per lb. as the combination of inventories on the LME and the Commodity Exchange (Comex) of New York declined again, to 382,001 (386,394) tonnes. Reflecting strong demand, tightly held producer stocks, and a lack of material in traders’ hands, molybdenum oxide prices appear to be temporarily settling in the range of US$3.40 (US$3.15) per lb.

Stirred only by the depreciating U.S. dollar and the consternation it is causing to major trading partners, precious metals continue their long sideways movement.

Trading narrowly, gold is unchanged at US$385.62 ($385.71) per oz. and silver has notched down to US$5.31 ($5.399) oz.

In the platinum group metals sector, platinum rose to US$405.95 ($401.38) per oz. while palladium jumped ahead to US$143.69 ($136.19) per oz. Supported by speculative and auto demand, rhodium eased back to US$760 (US$790) per oz., where it seems steadier.

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