METALS COMMENTARY — Strong demand boosts metal prices

Volatile metal prices have romped upwards over the past few weeks, spurred by strong demand and ever more price speculation. While long-term metals consumption remains positive, some retrenchment in prices can be expected whenever investors are prompted to take some profits.

While the U.S. economic boom is broadly based, the main engine driving the prosperity is the auto sector. Ontario knows this well, its auto industry being of major economic significance to the province. Car sales, particularly exports to the U.S., remain strong, but a recent rush of price increases and higher financing costs may cause buyers to delay purchases. Short-term steel and zinc sales would be the most affected.

In Canada and the U.S., rising interest rates are dropping house sales and this will begin to slow copper demand for wire and tubing.

As in the U.S., all levels of government in Canada are resisting any significant spending reductions and, instead, are floating trial balloons to determine whether higher taxes can be levied against those who are deemed either as having too much or as not paying their fair share. Except in Alberta, where stringent action has been taken, confidence in governments is slipping rapidly, and many investors are quietly moving some assets into other currencies.

Like their cash-strapped counterparts in North America, European governments are being encouraged by the economic pickup to plot tax increases wherever they dare. Gasoline taxes are the current favorite, which will further reduce consumption and discourage new car sales.

In China, massive government fiats in trade affairs and new consumption taxes, along with extremely poor weather of late, are complicating metal exports, causing shortages in some of the minor metals.

In the Commonwealth of Independent States trading area, the problems remain formidable as governments resist making necessary adjustments to state-supported industries. In light of news reports of misallotment of tax revenues, the coming winter may cause some serious production upsets to many communities.

Japanese exports appear to be recovering, but domestic demand is soft, and excesses such as inflated property values have yet to be dealt with. These factors bankrupted an amazing number of companies and institutions elsewhere in the world.

It appears to be just a matter of time before some step taken by governments, or by another group, precipitates a major drop in confidence and another market reaction.

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

Spot prices for all the base metals were up smartly during the latter half of the month.

Speculation pushed nickel prices to US$3.06 (US$2.89) per lb., as inventories advanced to 149,262 (144,432) tonnes. Spot values are around US$3.30. Still consolidating recent gains, free-market cobalt is sitting at US$26.50 (US$28.50) per lb.

News of concentrate shortages and strong demand nudged lead ahead to US29.1 cents (US27.8 cents) per lb. as stocks were basically unchanged at 371,150 (371,350) tonnes.

Investors edged zinc to US48 cents (US45 cents) per lb. as stocks dipped slightly to 1.2 million tonnes (little changed from September). Amid indications that supplies are improving, combined inventories on the LME and the Commodity Exchange (Comex) of New York fell lower, then rebounded to 353,007 (377,695) tonnes as copper strengthened to US$1.16 (US$1.14) per lb. The daily spot price is now above US$1.20.

Good steel demand kept molybdenum oxide price quotes in the range of US$4.10 (US$3.90) per lb.

Currency and inflation continue to hold gold at around US$390.25 (US$391.37) per oz. and silver at US$5.46 (US$5.52) per oz.

In quieter markets, platinum group metals were steady, with platinum at US$419.42 (US$417.19) per oz., palladium at US$154.66 (US$152.99) per oz. and rhodium at US$700 (US$800) per oz.

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