Base metal prices show stability

Reflecting an improved outlook in the general economy, some base metals appear to be entering a stable period. Mine producers, especially the high-cost ones, are seriously setting about reducing output, and even closing in some cases.

The slower growth of inventories in the hands of refiners and on the exchanges confirms that a tenuous balance exists between production and consumption.

Metal-consuming sectors are also displaying healthier signs, albeit some more so than others.

The consumer economy in the U.S., spurred by low interest rates, is running at near-normal levels. True, there are fewer suppliers, but output has generally returned to pre-recession levels. Cars and appliance sales are leading the pack, with sales rising rapidly.

In the capital investment sector south of the border, aerospace remains depressed, but housing is up and steel has snapped awake. The carbon and stainless mills have been trimming costs for several years and this process is largely complete.

While bar plants remain somewhat sluggish, the flat-rolled product mills (supplying, for example, the auto industry) are operating at capacity and, in some cases, even expanding.

The scrap industry, too, is gaining ever-increasing momentum. High demand and inadequate supply have pushed world prices for carbon scrap up 50% in the last quarter, to US$140-150 per ton. If European and Japanese demand continues to improve, carbon scrap prices may rise to startling levels. Complicating the scrap market are improvements at consumer plants, aimed at reducing the process scrap generated. For example, sheet metal fabricators with automated equipment have reduced scrap losses to 2% from 10%. In base metals markets, nickel is improving. Inco’s and Russia’s production cutbacks, combined with strong stainless scrap demand and some shortages in the U.S. market, have given a boost to November nickel prices on the London Metal Exchange (last month’s figures are in parentheses). At presstime, they stood at US$2.10 (US$2.02) per lb., with inventories having moved down slightly to 118,014 (119,196) tonnes. (Although subsequently covered, a recent nickel tender to the U.S. Mint was under-subscribed.) In lacklustre trading, cobalt prices eased during this month, with Western brands selling for US$11.50 (US$12) per lb. and traders offering Russian products at US$11 (unchanged from last month).

Supported by dropping production and rumors of refineries buying small quantities to deliver against customer contracts, LME lead prices traded in a narrow range at US17.9 cents (17.4 cents) per lb. Stocks advanced to 298,400 (293,450) tonnes.

Still reflecting an industry which has yet to reduce capacity sufficiently, LME zinc stocks increased again, reaching 850,725 (828,350) tonnes as prices contrarily rose slightly to US42.3 cents (41.5 cents) per lb. Meanwhile, copper prices were little-changed at US73.9 cents (74.7 cents) per lb. although the combination of LME and Commodity Exchange of New York inventories dropped to 661,490 (701,818) tonnes.

In the molybdenum market (where a U.S. Justice Department anti-trust investigation has surfaced), producer restraint and better demand for molybdenum oxide continue to firm prices to around US$2.55 per lb. (unchanged from last month).

Unable to find any strong support, gold prices continued to fluctuate at US$373.23 (US$364.00) per oz.

Platinum group metals (pgm), on the other hand, were relatively quiet, supported by reasonable demand and some apprehensiveness over recent drops in nickel and pgm byproduct output in Russia. With nickel off almost 50% in the past few years, one would expect to see some significant drops in pgm output — perhaps as high as 20% of previous export quantities. Platinum was ahead at US$375.14 (US$368.32) per oz. while palladium almost stood still at US$129.42 (US$129.81) per oz. Rhodium was virtually unchanged at US$1,050 (US$1,030) per oz.

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