Metals Markets — Metals market conditions volatile

Market conditions have entered a period of unusual volatility. Refinery producers of all metals are aggressively selling product to maintain market share, keep costs low and reduce inventories.

Unless organized to enhance one of the above needs, attempts by metal-refiners to reduce production, individually or as an industry, usually only help unco-operative competitors, be they in the West or the East. Most Western metal markets operate within normal commercial terms with new capacity initiated when high grades, demand or prices can support additional production.

The collapse of the Russian economy and the extreme currency inflation running amok there herald the crumbling of that nation’s heavy industrial and mining production. Supported only by currency advantage, much larger than normal quantities of almost all metals are being dumped into the West, which is already beset by a severe recession.

Unable to finance their capital needs because of hyperinflation, republics of the Commonwealth of Independent States are frantically seeking foreign aid and/or well-heeled partners to maintain or renew aged and uncompetitive operations. If they are successful, the West will see even more state-sponsored competition.

Exchange stocks and prices have become the principal concern of all market participants. With aggressive selling at or near London Metal Exchange (LME) values, refiners’ stocks are kept at reasonable levels and merchants must sell most stocks they obtain to terminal markets such as the LME or the Commodity Exchange of New York, or to end-users at severe discounts. The above conditions are pushing prices lower and putting enormous pressure on Western miners, particularly those with marginal value output. More shutdowns appear inevitable. However, almost any change to one of the important supply-side factors, such as an unexpected shutdown or mine or plant upset, may initiate some extraordinary upward price movements. Cobalt markets were quiet. U.S. government stockpile sales began quietly and will probably replace some Zairian near-term shortfalls, at least in the U.S. With March values in parentheses, spot April prices are unchanged with Western brands at US$15 ($15) per lb., Russian at US$13 ($13) and producers at US$18 ($18).

Encouraged by firm stainless scrap prices and lower seasonal shipments of Russian material, nickel has firmed in the US$2.65-to-2.75-per-lb. range. To date, April LME nickel is unchanged at US$2.713 ($2.710) as LME inventories rose to 88,908 tonnes and then closed the week at 87,450 tonnes (86,910 tons). The report two weeks ago incorrectly indicated production and demand of molybdenum at about 180,000 tonnes. The amount should have read about 80,000 tonnes. Oxide remains steady around US$2.10 ($2.14) per lb.

LME cash prices for copper collapsed to US89.4 cents (97.6 cents) as LME and Comex copper inventories continued their rise to 478,195 tonnes (452,114 tons).

Lead markets are quiet. Producers report reasonably firm sales, albeit at low prices. Falling mine production and concentrate availability, and lately some increases in consumption, should improve the metals outlook during the next few months. Reflecting the above, cash LME prices were up slightly at US19.1 cents (18.4 cents) per lb. but stocks were also up again to 249,700 tonnes (245,775 tons).

Zinc markets were quiet with cash prices unchanged at US45.5 cents per lb. (45.2 cents) as stocks edged up again to 620,175 tonnes (599,825 tons). Precious metals were all active and generally bullish. Breaking out again above a long sideways movement, prices to date in April saw platinum ahead to US$366.34 ($350.03) per oz. Charging upwards, palladium gained ground to US$114.10 ($106.02) per oz. and rhodium declined to US$1,075 ($1,400) per oz. Signalling at least a short-term change in direction, persistent speculative demand pushed gold to US$339.26 ($329.97) per oz. and silver to US$3.90 ($3.65) per oz. During the next few weeks, gold and silver look set to again test their current downtrends which began in early 1990.

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