METALS MARKETS — High metal inventories a concern

The recession and the subsequent rise in metal inventories continue to generate misery and further announcements of cutbacks in the mining industry. Metal consumption is down almost everywhere to some degree. Until last year, production cutbacks were mainly in the curtailment of expansions or new greenfield capacity.

Where OECD members are working their way through one of the worst depressions since the 1930s, less advanced countries are devastated even more by increasing commercial and civil problems as demand for their products drops.

In many cases their economies depend on one or two products, usually raw materials similar to those made in Canada but without, unfortunately, much other infrastructure or potential alternatives on which to fall back. The result is rising chaos in these areas, with increased civil unrest, crime and danger to travellers as the early signs of pending breakdowns. Cobalt prices are steady so far but Belgian and French troops have been assisting their nationals to leave Zaire where rioting troops are looting and killing. Conditions are quieter in Zambia where recent rains have eased power shortages but the state-owned ZCCM is trying to persuade foreign investors to advance hundreds of millions in funds needed to revitalize ailing copper and cobalt production facilities.

January cobalt dealer prices (with December values in brackets) are sitting around US$15.25 ($15.50) per lb. for western brands and US$12 ($11) for Russian. Producers are holding at US$18 ($18).

Western nickel producers continue to slow output and shutter capacity with several expansion projects likely to be further delayed. On a positive note, the world’s stainless industry produced 10.5 million tonnes in 1992, similar to that for 1991 and the forecast for 1993. Stainless scrap is tight and consumer inventories of alloy products are low.

While so far not confirmed, unofficial Russian nickel exports are rumored to be drying up. Average January nickel was still ahead at US$2.691 ($2.597) per lb. as inventories rose to 78,804 (67,914) tonnes.

Countering slow sales and high inventories, further announcements of shutdowns kept molybdenum oxide steady at US$1.80 ($1.80) per lb. LME and Comex copper inventories dropped to 423,801 (435,070) tonnes but average LME cash prices are little changed at US$1.024 ($1.002).

Low lead prices and rising inventories are pressuring miners. With more expected, Australia’s Pasminco and Canada’s Cominco announced capacity shutdowns which should affect lead and zinc inventory levels in mid-1993. LME lead prices eased to US19.8 cents (20.6 cents) per lb. as stocks were up again to 235,025 (212,550) tonnes.

Zinc LME cash prices were unchanged at US48.1 cents (48 cents) per lb. but stocks surged to 519,500 (457,525) tonnes.

Precious metals were quiet as the South African authorities and the various black parties seem to be slowly stumbling toward an agreement. Platinum eased to US$359.28 ($362.09) per oz. while palladium continued to confirm its turnaround at US$109.83 ($106.73) per oz. Currency concerns held gold at US$328.99 ($334.66) per oz. and silver at US$3.68 ($3.73) per oz. — Jack Dupuis is a minerals marketing consultant based in Thornhill, Ont.