Barriers threaten metals trade

Barriers to trading of raw materials are becoming more common.

Reflecting a growing impatience with the foot-dragging pace of monetary reform in Russia, the European Community (EC) has imposed a 60,000-tonne limit on aluminum entering the EC between August and November, 1993. In announcing the limit, the EC cited injury to domestic suppliers and state energy subsidies and a complete lack of environmental standards and controls. The recent dissolution of the holdover Soviet-era constitution and parliament by Boris Yeltsin and a call for December elections may eventually bring some financial reform and hasten the move to a full market economy. Miners and manufacturers in the Commonwealth of Independent States (CIS) would then have to pay something close to world prices for energy and raw materials. Some producers would be uneconomic without state subsidies and would have to raise prices or shut down, reducing some of the cheap CIS metal exports. Elsewhere, such as in Japan and India where demand is already sluggish, the export of CIS materials is seriously hurting local producers and, in some cases, threatening closures. Metals identified for review include magnesium, titanium and silicomanganese.

Upstream, CIS-manufactured products such as titanium ingot and stainless bar are being offered in world markets at substantial discounts to local products. The growing reaction has been to propose the imposition of more tariffs.

In North America, particularly in the U.S., the number of trade complaints levelled against various countries and manufactured products (especially steel alloys) is reaching crisis levels. Solving one recent problem, the U.S. and EC have agreed to limit, by quota, a flood of CIS uranium exports which has resulted in a 2-tier market for CIS uranium.

Each tariff barrier increases pressure on the shipper and on the remaining market areas available to it. As long as CIS exports were only raw materials, there were few complaints by beneficiaries. As CIS exports start to move upstream, with more value added as manufactured products — and as they begin to threaten already high unemployment in affected countries — tariff reaction will be increasingly swifter and will apply to an ever-wider range of products.

It is hoped the threatened drop in CIS export earnings will hasten the change to full-market prices for all-product cost components, including the state-supported elements such as energy. Western miners would be immediate beneficiaries of such a move since they would no longer have to compete with CIS metal sold domestically at half the world prices and then promptly exported as scrap.

During September, precious metals retreated to lower levels and then recovered some of their losses following the recent political upset in Russia and South Africa. Gold Fields Mineral Services released an interim 1993 gold update forecasting a 2% increase in mine output but a 6% drop in overall supply and demand for 1993. Still, September gold prices eased down, reaching US$355.75 (US$379.80) per oz. (All parenthetical figures refer to the previous month.)

Again in sympathy with gold, silver weakened and rebounded but also dropped, reaching US$4.24 (US$4.84) per oz. for the month.

Better auto sales and renewed Japanese buying supported platinum, which declined to US$362.81 (US$393.38) per oz., and palladium, which also was down, to US$121.03 (US$137.17) per oz. Spot rhodium moved ahead to US$980 (US$915) per oz.

As major producers only very slowly reduce output, base metal inventories are reaching highs not seen for years.

London Metal Exchange (LME) nickel prices slid to US$1.989 (US$2.14) per lb. as LME inventories jumped to 115,668 (106,260) tonnes, about 15% of consumption.

Dropping availability firmed cobalt September prices, holding Western brands at US$13 (US$12) per lb. and Russian products at US$11.50 (US$11). Forecasts presented at the recent Cobalt Development Institute conference show little change yet in overall supply, with production down in Zaire and toll output up at Russian refineries.

More closure announcements by secondary refineries, which account for half the supply, kept LME lead prices in a narrow range at US17.1 cents (US17.6 cents) per lb. as LME stocks again rose to 282,525 (278,000) tonnes. In spite of a temporary squeeze on copper, prices declined to US85.3 cents (US88.3 cents) per lb. Commodity Exchange of New York (Comex) stocks are falling, but the combined LME and Comex inventories rose again to 675,284 (608,542) tonnes.

Although more supply is looming from the surge in Chilean copper production, current closely held inventories and restrained producer sales strengthened molybdenum oxide at US$2.50-2.55 (US$2.25) per lb., with fourth-quarter quotes US20 cents per lb. higher.

Dragged down by weak European markets, LME zinc stocks increased again, reaching 797,650 (762,500) tonnes as prices eased slightly to US39.7 cents (US40.1 cents) per lb.

— Jack Dupuis is a minerals marketing consultant in Thornhill, Ont.