Nickel, copper exhibit strength

Since mid-April, investment funds, followed by a host of other speculators, have been buying London Metal Exchange (LME) nickel and copper contracts. As a result, prices are being steadily driven to levels not seen for many months.

These investors are expecting a strong rebound to ensue from the rapidly improving economies in Europe, where the severe recession has wrung most excess stocks from the system. In the producer markets, there is little extra metal available to meet the added demand and, consequently, prices have been rising. Short covering has also had the effect of accelerating prices. In the physical markets for nickel and copper, producers are selling all their output and have been doing so for many months. Inventories of copper, and lately nickel, on the public exchanges have been declining, indicating an increase in physical tightness.

Nickel and copper customers have begun to top up stocks in response to labor negotiations in Sudbury, Ont., and the added activity by speculators is having a dramatic effect.

In Sudbury, strikes could commence at Inco on May 31 and at Falconbridge on Aug. 14. Both companies produce nickel, copper, cobalt and platinum group metals.

Producer sales of nickel and copper are strong, and current inventories are adequate only for meeting delivery needs of regular customers. In Kristiansand, Norway, a dock strike is slowing Falconbridge’s deliveries of container nickel and copper, and some metal is being rerouted to other ports.

Customers who consume metals are estimated to have no more than two weeks worth of average stocks on hand. Some customers have even begun to augment stocks.

Adding to demand, the U.S. high alloy market is reported to be gaining strength, albeit slowly.

Also in the U.S., Allegheny Ludlum, the largest domestic producer of stainless steel (accounting for 28% of the market), has been on strike for several weeks. Stainless steel producers in Europe and Asia, on the other hand, are increasingly busy as their scrap and virgin metal requirements continue to rise.

Meanwhile, copper and brass mills throughout the world are operating steadily. Copper scrap is in tight supply and has actually been trading near the same price as that of virgin units.

The following is a summary of LME prices and inventories for May to date, with last month’s figures shown in parentheses:

Having risen almost every day for the past few weeks, prices for nickel increased again, to US$2.64 (US$2.45) per lb., as inventories eased to 132,516 (133,752) tonnes.

Reacting to steadily falling inventories and improving consumer demand, copper prices rose strongly, reaching US92.7 cents (US85.4 cents) per lb., as the

combination of inventories on the LME and Commodity Exchange of New York declined again, to 450,992 (502,239) tonnes.

After surging to US$26 per lb., cobalt settled back, with Western brands now at US$23 (US$26) and Russian products at US$18 (US$22). Consumption has continued to fall, as some users switch to alternative alloys. Essentially, only three markets for cobalt use are left open: anemic jet engines, magnets and chemicals. With cobalt production declining in Africa, Canadian nickel producers now supply some 30% of the market.

Growing shortages of refinery feed and finished metal in some areas, together with seasonal softness in battery demand, has kept lead prices essentially unchanged at US21 cents per lb. Meanwhile, stocks increased again, to 345,725 (339,775) tonnes.

Better-than-expected sales of NiCad batteries and falling lead-zinc-cadmium feeds have pushed cadmium prices to US78 cents (US65 cents) per lb. In quiet markets, zinc stocks surged again, to 1.2 million (1.1 million) tonnes, as prices improved marginally to US43.1 cents (US41.9 cents) per lb. Improving demand in Europe and an apparent tightness of supply have pushed molybdenum oxide prices to US$3.15 (US$3.05) per lb.

Precious metals generally moved sideways, as stakeholders bided their time by awaiting developments in Africa and Russia.

Along with gold, at US$378.33 (US$377.91) per oz., platinum traded narrowly, at US$395.49 (US$396.84) per oz. Reflecting improved auto demand, palladium rose slightly to US$136.92 (US$133.66) per oz. Rhodium, on the other hand, slid again, to US$610 (US$650) per oz., ignoring the rising auto numbers and reflecting higher-than-expected production levels.

Silver dropped to US$5.10 per oz. before rebounding sharply to US$5.40, showing an average of US$5.28 (US$5.31).

Altogether, the second quarter should be an interesting ride, at least for nickel and copper prices.

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