Base metal markets continued their upward thrust in September as investors bought and bought, ignoring any simultaneous rise in inventories on the London Metal Exchange (LME).
Strong physical demand remains the dominant factor in most markets as base metal producers report sold-out positions, albeit at low returns. At current price levels, base metal producers are essentially covering their costs, wobbling from quarter to quarter between small profits and losses. Producers of minor metals are faring much better. Faltering supply, sharp rises in demand and stocking attempts by merchants are driving up prices for arsenic, antimony, cadmium and many of the steel-making alloys. The condition of the downstream metal-working companies is now much better. Most metal consumer areas remain busy and third-quarter numbers are expected to confirm demand for a wide spectrum of industrial activity which held or expanded and (most importantly) did not significantly contract during the holiday period.
Autos, manufacturing, transportation and superalloys report higher order books, with delivery lead times for the steel sector now stretching to at least the first quarter of 1995.
The increases in several consumer industries are in the double-digit category, which indicates the recovery is broad-based and, unless disturbed by governmental intervention, can continue for some months.
Coincident with the move by most member nations of the Organization for Economic Co-operation and Development (OECD) to revive their economies, metal-working sectors have been straining to meet customer orders. As a result, significant metal-related price increases have been announced and accepted. While further changes in price are expected, values for many raw materials appear to be stabilizing (at least those with large inventory overhangs).
The effect of investors enhancing physical market prices is usually not sustainable for long periods. And eventually — this is especially true of metals with high inventory levels — rising prices are affected by the fact that physical stocks are falling.
The following is a summary of average LME prices and inventories to date in September, with last month’s corresponding figures shown in parentheses: Rising stocks did not deter investors as nickel rose to US$2.87 (US$2.66) per lb. and inventories advanced to 142,278 (138,186) tonnes.
Along with rising demand, falling production and merchant stocking at U.S. government stockpile sales caused prices to firm up, sending cobalt surging to US$27 (US$23) per lb. African and Russian production continues to ebb, and only the U.S. sales have kept a lid on prices for this metal. Low lead prices and resulting shortfalls of mine concentrate and restrictions imposed by the BASEL treaty (complicating scrap flows) appear to be reducing refinery production and (finally) slowing inventory growth. Lead stocks edged up to 368,375 (366,850) tonnes and prices rose to US27.6 cents (US25.9 cents) per lb. The continued slowing growth in inventories helped nudge zinc prices to US44.4 cents (US42.9 cents) per lb. as stocks reached 1.2 million tonnes (virtually unchanged from a month ago).
The recent biweekly declines to 389,711 (389,130) tonnes for the combination of inventories on the LME and the Commodity Exchange (Comex) of New York buoyed copper prices to US$1.13 (US$1.09) per lb.
Rising steel demand and ever-higher quotes for future deliveries look set to move molybdenum oxide prices above the current range of US$3.50-3.75 (US$3.50) per lb.
In quiet markets disturbed only by the odd currency ripple, precious metals traded narrowly. Gold rose to US$388.91 (US$380.21) per oz. and silver jumped to US$5.45 (US$5.19) per oz.
Among platinum group
metals, strong economic news and steady physical demand were the norm as platinum rose slightly to US$416.18 (US$412.30) per oz., palladium was unchanged at US$152.00 (US$152.17) per oz. and rhodium eased to US$800 (US$850) per oz.
— Jack Dupuis is a metals agent, broker and consultant specializing in the marketing of mining properties.
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