Metals Commentary — Stronger metals prices expected

The summer holiday period is traditionally a time to reflect on the events of the first half of the year and assess metal demand and supply, yet this is not a traditional summer.

Most metal markets continue to be characterized by volatility, with waves of demand necessitating heavy purchasing and unsustainable price rises. These are followed by consumer inventory drawdowns and ebbing prices.

Surprisingly (for this time of year), exchange inventories continue to decline steadily. And if metal consumption levels remain anywhere near current rates, the next 12 months will probably see stronger metal prices.

Indicating a very broad-based and prosperous world economy is the fact that sectoral slowdowns in the auto and home-building sectors are having little overall impact on demand. Increases in metal consumption continue in Europe, Japan and the Far East. Even in Russia, demand is increasing in some sectors.

In North America, capital expansions are creating greater need for metals in general. Scrap sales, always a precursor of demand, remain brisk. Prices for carbon grades have moved up $10-15 per ton this month. Prices for stainless grades also rose, to between $1,200 and $1,250 per tonne for grade 304 and between $1,600 and $1,700 per tonne for grade 316. Other non-ferrous scrap is selling at close to virgin metal contained quotes.

While consumer sales have slowed down in some sectors, other industries appear to be expanding as month-over-month inventory continues to decline, indicating consumption is exceeding production for many metals. Canadian exporters and U.S. manufacturers are still reporting solid orders, although Canadian domestic demand appears to be languishing.

Until the summer holiday period ends, little reliable information will be forthcoming. And no serious decision-making will occur until market-watchers assess the level of fourth-quarter purchasing.

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

Strong demand and the absence of spare inventory, combined with rising producer premiums, pushed nickel to US$4.03 (US$3.90) per lb. as inventories fell to 72,624 tonnes (74,982 tonnes at the end of July).

Brisker demand raised cobalt free-market quotes for Western A Grade to US$28 per lb. (US$27 on July 30).

Estimates that 1995 mine production fell slightly and refined output was ahead caused lead to rise slightly to US28.5 cents (US27 cents) per lb., as LME stocks fell again, to 230,850 (234,425) tonnes.

Unusually steady seasonal demand supported zinc at US46.5 cents (US46.6 cents) per lb., as stocks dropped to 777,900 (790,125) tonnes. Unlike the other base metals, it will be a few months before zinc consumers have to worry about shortages and sharp price increases.

Despite the fact that the trade press is forecasting overproduction, copper seems determined to await clearer directions. Inventories are at levels not seen in years, with consumers absorbing any new production. Annual world consumption is reported to be 13 million tonnes, and it will take a lot more stock buildup to cause more than a very short-term reversal in price.

At the end of July, the combination of inventories on the LME and Commodity Exchange of New York had fallen to 165,779 (168,524) tonnes, while average LME prices for the month hovered around US$1.375 (US$1.393) per lb.

A surge in American production added material and hesitation to spot molybdenum oxide prices, which ebbed to $5.50, while producer prices remained around US$6 per lb. ($7 at the end of June). There have been rumors of oxide prices at $4.50, although we have seen mainly scrap in this range.

The market is apparently full of moly, and there is much speculation about oversupply. However, little is available in the way of hard numbers. Large increases in output by American and Chinese producers helped cover any shortfalls.

Precious metals, meanwhile, remain listless as they consolidate on little real news. Gold ebbed slightly to US$383.27 (US$385.87) per oz., as did silver, which averaged US$5.15 (US$5.17) per oz..

In July, platinum slipped to US$421.58 (US$433.45) per oz., as did palladium, which fell to US$151.67 (US$155.30) per oz. Rhodium, too, eased back, dropping to US$450 (US$500) per oz.

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