OECD output bolsters markets

Strong industrial production in most member nations of the Organization for Economic Co-operation and Development continues to bolster base metal markets, while uneasiness over social issues in Russia and South Africa is lending support to precious metals.

Strength can also been seen among producers of carbon steel and stainless steel. Responding to excellent U.S. demand in housing and cars, the sector is holding steady in Japan, growing elsewhere in Asia, positively booming in the U.S. and starting to come alive in Europe (where auto production is said to be looking up).

While the consumer sector is healthier than of late, capital sectors must await improvements in end-use markets. Some key industrial sectors which are expected to begin showing signs of improvement are airlines, superalloys and office equipment.

Rising interest rates in many jurisdictions are threatening the economic resurgence, particularly in North America. Responding to repeated increases in U.S. interest rates, stock markets have gone into correction, and new bond and stock issues could stall until investors sense a return to stability or are able to adjust their rate expectations.

Good physical demand and a general balance between supply and consumption among most base metals appears to have rendered prices stable, though inventories remain rather high.

Despite various rumors — among them, that production declines and financial difficulties are hurting plants in the Commonwealth of Independent States and that workers at Inco’s Sudbury, Ont., operations may strike on May 31 — the price of nickel eased to US$2.454 (US$2.535) per lb. as inventories dropped slightly to 133,752 (136,284) tonnes. (All prices and inventories are based on the London Metal Exchange cents LME], with last month’s figures shown in parentheses.)

It is uncertain whether the recent decline in LME nickel stocks reflects increased investor speculation or demand from smelters for production and restocking. Any extended disruption at South African mines would also put pressure on nickel markets, since that country accounts for some 50,000 tonnes per year. Furthermore, ports in South Africa serve as conduits for another 40-50,000 tonnes from neighboring Botswana and Zimbabwe. Turning to cobalt: After surging to current levels, prices seem to have steadied. Good-quality Western brands are unchanged at US$26 per lb., as are Russian products, at US$22. Based on falling production, the industry consensus seems to be that prices will eventually rise again. Any transport disruption in South Africa would interrupt copper-cobalt shipments from Zaire and Zambia, adding to price pressures.

In quiet markets, rising inventories kept lead prices virtually unchanged at US20 cents (US20.5 cents) per lb. as stocks increased again, to 339,775 (334,800) tonnes. With consistently good demand, producers are attempting to increase lead premiums in North America.

On little news, zinc stocks surged again, to 1.1 million tonnes (little changed from last month) as prices hovered at US41.9 cents (US42.5 cents) per lb. — again supported, as with many other metals, by recent producer, investor and fund trading.

Reacting to steadily falling inventories and improving consumer demand, copper prices traded narrowly at US85.4 cents (US86.9 cents) per lb. as the combination of inventories on the LME and the Commodity Exchange of New York declined again, to 502,239 (543,941) tonnes.

Despite high producer stocks, an apparent tightness attributed to Chinese shipping delays continues to put pressure on molybdenum markets. Oxide prices moved ahead only slightly, to US$2.95-3.10 (US$2.90) per lb. In precious metals, the possible revenue options available to the new South African government for public works in destitute townships are the subject of much speculation. If public order can be maintained, the new government may be able to re-align present expenditures, such as military funds, for these projects. If not, higher taxes will result. As a result gold prices remain unsettled, having fallen slowly to US$377.91 (US$384.18) per oz. Responding to unexpected labor strikes at one South African mine, platinum fell and then recovered to close April with an average of US$396.84 (US$400.29) per oz. Palladium, meanwhile, was steady at US$133.66 (US$133.07) per oz. Still reflecting concerns about auto companies switching to all-palladium catalysts, rhodium continued its free fall, closing April at US$650 (US$700) per oz.

Still in consolidation, silver eased to US$5.31 (US$5.44) per oz. in quiet markets.

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