METAL MARKETS — High nickel inventories pressure producers

Russian metal exports and western reactions are puzzling. Repeated official Russian government announcements of new regulations and licensing requirements to reduce unauthorized and illegal exports are clearly ineffectual.

The volumes of these illegal exports which can then be imported, stocked and easily resold to European purchasers are stunning. While some western merchants and European purchasers may reap a cost advantage on such materials, it would be a different matter if those shipments were in the form of finished goods such as stainless steel or aluminum sheet. It seems western miners must step aside to support their heavily subsidized Russian competitors as the latter shovel whatever they wish into world markets. The apparent dumping is explained as necessary to support the new regime in Russia.

Western nickel producers will soon have to face difficult decisions. Despite extended summer shutdowns, inventories climbed to the highest levels in years and there seems little near-term relief.

Higher than expected receipts of Russian nickel and continued slow demand is putting price pressure on suppliers to slow their output. Squeezed by high debt, integrated producers — which are now losing money on every pound shipped — will only announce further cutbacks when market prices reach their cash costs of production. Those producers, with no other byproducts to ease the pressure, will incur even higher losses.

On the positive side, consumer inventories are low and stainless scrap is in short supply with contained nickel prices near those of producers’ for virgin nickel. To date, average September LME cash nickel prices (August averages are in brackets) have fallen to US$3.182 ($3.298) per lb. and inventories have risen slightly to 44,388 (43,302) tonnes.

Lower than anticipated production levels by African producers, poor demand and Russian exports kept cobalt around US$19 per lb.

Base metals were quiet, awaiting economic news. While market conditions for copper are good, another rise in LME and Comex inventories to 315,593 (304,157) tonnes eased LME prices to US$1.114 ($1.141) per lb. Zinc markets were steady with LME average prices ahead slightly to US63.4 cents (61.7 cents) per lb. and stocks also up to 353,625 (349,225) tonnes. LME lead prices were unchanged at US29.5 cents (29.6 cents) per lb. as stocks rose slightly to 156,725 (154,825) tonnes.

Continued racial unrest and civil disturbances in South Africa and OECD currency apprehensions supported quiet precious metals markets. Platinum was US$358.80 ($359.82) per oz. while palladium rose slightly to US$89.36 ($85.54) per oz. Gold was off to US$341.72 ($343.60) per oz. and silver fell again on news of investor sales to US$3.72 ($3.82) per oz.

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