Metals Commentary — Year-end projections show metals turning lacklustre

World metal markets are quietly softening, and annual sales are now expected to mirror those of 1994.

Growth will likely be static for the balance of the year, particularly in North America where order backlogs were cut in half during the third quarter. Part of this decrease is seasonal, although no increase in backlogs is expected in the short term. Companies wishing to report real growth will have to do it at the expense of their employees and competitors through cost reductions and acquisitions.

As a result, base metals will remain in what is expected to be a long consolidation phase. Prices are relatively stable as inventories continue to be steadily digested. The supply of most base metals is slightly short of demand, with many producers chomping to start greenfield or restart shuttered capacity but unable to do so (except for small, marginal, high-grade increments).

At current levels, world markets are adequately supplied, and stable prices are expected to persist until higher prices make it possible for capacity to be increased. The recent 1-year shortage and the speed at which new capacity was found in the molybdenum market is a good example of this.

In Canada, exporters, assisted by the exchange rate, report reasonably brisk but slowing sales. Domestic sectors remain deadlocked as most consumers sideline all but necessary purchases. Some industry groups are saying they have not seen such consumer truculence since the years following the Great Depression.

Along with industry restructuring, the never-ending turf wars and savage tax policies practised at all levels of government are destroying electorate confidence.

In the longer term, the consequences of discouraging the normal ebb and flow of the domestic market in Canada could prove disastrous to the country. American ferrous plate & structural scrap prices are hovering around $151 per lb. Stainless 304 edged down to $1,100-$1,125 ($1,150-$1,175 in the previous month) and 316 slipped to $1,425-$1,450 ($1,575-$1,650).

The following prices and inventories of the London Metal Exchange (LME) are for the month of October to date, with the previous month’s figures shown in parentheses, unless stated otherwise.

In nickel markets, strong stainless sales were offset by the need to reduce some overbuilt stocks. Consequently, prices fell to US$3.60 (US$3.81) per lb. as inventories fell to 57,672 tonnes (60,546 tonnes at the end of September).

Free-market quotes for Western A Grade cobalt ebbed to US$28.50 per lb. (US$29 at the end of August).

Brisk battery sales supported lead at US27.1 cents (US26.9 cents) per lb. as stocks fell again, to 207,800 (210,375) tonnes.

Turning to zinc, demand remained steady everywhere but Europe (where it eased somewhat). This, combined with some closure announcements in Japan, held the price at US45.3 cents (US44.8 cents) per lb., as stocks fell to 737,000 (744,925) tonnes.

Reflecting some continued tightness in refined supply, particularly in the U.S., copper weakened to US$1.30 per lb. (US$1.32 in July). The combination of inventories on the LME and Commodity Exchange of New York rose to 186,031 (178,100) tonnes.

Spot molybdenum oxide prices were up slightly to $5 ($4.50) per lb. as markets became balanced. Ferro-moly made from oxide eased again, to $6.15-$6.35 ($7).

Precious metals, on the other hand, remain lifeless, reflecting softer consumer sales of jewelry and autos. Gold sat at US$383.31 (US$383.03) per oz. and silver eased to US$5.38 ($5.43) per oz.

A slowdown in the output of autos had the effect of softening prices of platinum group metals. Platinum slid to US$415.71 (US$430.01) per oz., while palladium fell to US$138.44 (US$143.76) per oz. For its part, rhodium slumped and then recovered to US$345 per oz. (US$330 on Sept. 30).

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