METALS MARKETS — Metals threatened by subsidies

Reacting to growing unemployment and falling confidence, consumers worldwide are cutting all unessential spending, including metals. Ignoring their consumers and voters, governments, with huge deficits and high and rising taxes, are increasingly trying to motivate domestic industries with interest rates, devaluations and special treatment.

Sponsored by special interest groups, trade interference, especially in the form of subsidies or taxes, is rising sharply. As a result, smuggling has become a high-growth industry.

In metals, the flood of heavily subsidized Commonwealth of Independent States (CIS) metal exports to Western countries is threatening the viability of metal producers and processors. Traders and even producers are lining up to buy or barter directly with the producing CIS combines.

European use of these manufactured scrap materials is now significant while their normal purchases of western stainless steel scrap and virgin metals are down sharply. Not surprisingly, OECD unfair trade practice complaints are rampant.

Responding to petitions by U.S. miners, the U.S. and European Community have negotiated an anti-dumping pact for future CIS uranium exports. Heavy CIS sales from government stocks surged to 11 million lb. in 1990 from 1.3 million lb. in 1988, depressing Western prices well below the real cost of production and threatening many Western producers’ ability to maintain operations. The pact permits annual 3-million-lb. sales levels until prices rise above US$13 per lb., after which exports can increase sharply. Amid reports of continued nickel production cutbacks (and with end-of-September numbers in brackets), average-to-date October LME cash nickel prices fell to US$2.881 ($3.139) per lb. as inventories, mainly in the form of CIS cathode, jumped again to 55,080 (45,750) tonnes. Despite falling demand and discounted CIS exports (in the $8-10-per-lb. price range), cobalt prices paused at $14-15 on reports of serious unrest in Zaire. The problems there are complicated by the absence of a central government and recent looting of shops and homes by soldiers.

In base metals, producer sales volumes are reported steady, albeit at lower prices. However, reflecting some increase in supply, either from falling demand or rising production, deliveries to exchange warehouses are up. LME cash prices for copper, after falling for several days, steadied at US$1.021 ($1.102) per lb. Now at near-normal levels, LME and Comex inventories are up again to 364,265 (336,777) tonnes.

Zinc markets were also softer, with LME average October prices down slightly to US$0.534 ($0.620) per lb. and stocks up to 377,575 (362,950) tonnes. LME lead prices eased to US$0.247 ($0.283) per lb. as stocks rose steadily all month to 181,475 (169,725) tonnes.

Except for palladium, which is showing chart strength, precious metals are quiet and little changed. Easing back on recent gains, platinum dropped slightly to US$358.91 ($362.13) per oz.

Palladium rose to US$94.97 ($90.80) per oz. Gold is volatile at US$345.49 ($345.30) per oz. and silver is steady at US$3.75 ($3.77) per oz. — Jack Dupuis is a minerals marketing consultant based in Thornhill, Ont.