Metals sub-index jumps in December

In December, the metals and minerals sub-index of the Bank of Nova Scotia’s commodity price index rose for the second straight month.

Base metal prices continued to edge up in December and January, though most prices still remain well below average Western World break-even costs. Despite weak demand in Japan and Western Europe, U.S. investor interest has picked up alongside a stronger U.S. economy, low interest rates and a perception that metals represent good value compared with bond and equity markets, Economist Patricia Mohr reports.

Optimism that smelters will agree to co-ordinated cutbacks in aluminum and zinc output (particularly in Russia and Western Europe) has also buoyed prices.

Copper increased to US85 cents per lb. from US74 cents in November, making it the strongest gainer of the base metals. The increase is partly attributable to the fact that the inventory overhang is much less than that being experienced by other metals. Western World copper stocks represent 6.7 weeks supply and are only slightly higher than in late 1986, when prices started to improve, Mohr says. In contrast, aluminum inventories are an excessive 15.1 weeks supply; zinc, 14.4 weeks.

Buying of New York investment funds helped push up the gold price to a high of US$395 per oz. in early January, but it has subsequently eased to US$384 alongside an improving bond market and expectations of continually low inflation in the U.S. Demand for gold remains subdued in the price-sensitive markets of Hong Kong and Singapore, though dealers believe Far Eastern consumers are becoming accustomed to somewhat higher prices. The metal and mineral sub-index was up 5.6% in December from November, and off by 5.8% from a year ago. The all-items index jumped 6.2% in December to a level 12.6% above that of a year ago.

The all-commodity index tracks export prices of various Canadian commodities, which are weighted according to their 1984 export values (except crude oil, for which net exports are used).